China FTA opens the door to property opportunities

The nexus between Australia and China has been cemented by the landmark free trade agreement (FTA), slated to come into force later in 2015, and Australian businesses need to be primed to take advantage of the opportunities, says Savills.

The loosening up of ties that will allow opportunities to flow between the two countries signifies a coup for Australia to gain access to the world’s dominant trading partner.

“Businesses need to get ready for the FTA and get over there and take advantage of this unprecedented access to the Chinese market,” advises Tony Crabb, national head of research at Savills Australia.

Crabb forecasts China’s investment appetite for Australian property is poised to accelerate, with much of the investment activity bolstered by the fact that many of China’s investors have strong business and family ties with Australia, having been educated here.

According to Savills Australia research, in the 12 months to June 2014 there was a record $5.9 billion of foreign investment in the Australian commercial property market, $3.9 billion (67 per cent) of which came from direct Asian investment.

Crabb explains that Chinese investors – from conglomerates, banks and developers, to high-net-worth individuals – were increasingly attracted to Australian property because the market offers freehold title, transparency and a strong legal framework.

“The Australian market is not opaque or clouded; we obey the rules and that’s a breath of fresh air for Asian investors, many of whom have been used to dealing with the emerging markets. Australia presents the opportunity to spread their wings in a less risky environment,” Crabb says.

He adds that we need to ensure the opportunities are bilateral. While the Australian market has enjoyed the influx of Chinese investment in the property sector from a range of sources, the FTA will now also see a surge in the number of Australian companies purchasing property entitlements over Chinese commercial assets.

A recent Savills Insight paper, ‘China: At Home, Abroad and in Australia’, spotlights public-private partnerships, including health care, education and infrastructure, and opportunities in aged care, social housing, logistics and urban rejuvenation as key opportunities for Australian business.

The use of land in China can be bought from the government on a long-term lease – typically 40 to years for commercial property and 70 years for residential. “A long-term leasehold can be bought and sold, which means capital gains, albeit taxable, can be made,” Crabb says.

To download a copy of the ‘China: At Home, Abroad and in Australia’ report select this link