Foreign investment rules allow overseas buyers to invest in new property. Photo: Janie Barrett
Public servant Tina Ford said she could hardly believe it when her three-bedroom Chatswood apartment sold this month for $1 million at an auction in which all 16 registered bidders were ethnic Chinese.
“I’m over the moon, I’m gobsmacked,” said Ford, 53, adding that she “would have been ecstatic with $940,000” and didn’t expect to double what she had paid 14 years ago for her third-floor unit with a balcony 11km from Sydney’s CBD. “I suspect that overseas investment, Chinese or otherwise, is certainly pushing prices up, but from a vendor’s perspective, I’m ecstatic.”
Such buying by locally resident Chinese and those from mainland China is inflating housing bubbles in and around Sydney, where prices in some suburbs have surged as much as 27 per cent in the past year. That’s almost three times faster than the overall market.
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Many of the neighbourhoods with the biggest price gains “are areas that are popular with Chinese buyers,” said Andrew Wilson, senior economist at real estate data firm Australian Property Monitors. “Some of these suburbs are seeing price growth that we haven’t seen in Sydney since the early 2000s.”
The proportion of foreigners purchasing new homes in Australia more than doubled to 12.5 per cent in the three months to September, from 5 per cent throughout most of 2011, according to a survey of more than 300 property professionals by National Australia Bank.
Auction bidding
A second-hand house in suburban Eastwood sold for as much as $1 million more than the expected price, according to John McGrath, chief executive of McGrath Estate Agents in Sydney, which set up a Chinese sales desk in September.
McGrath agent Adam Wong, who brokered Ford’s apartment, said 95 per cent of the more than 100 people at the auction were locally resident Chinese.
Elsewhere in Chatswood, 90 per cent of developer Mirvac Group’s ERA high-rise apartment building sold to ethnic Asian buyers, most of them Chinese, according to John Carfi, head of the residential division.
SQM Research, a Sydney-based data company, forecasts home price gains of as much as 11 per cent this year in Australia’s biggest cities.
Overvalued market
Home prices in major Australian cities rose 9.8 per cent in 2013, the fastest calendar-year growth since 2009, according to the RP Data-Rismark Home Value index. The average weekly wage grew at about half that rate, to $1,105 before taxes as of May 31 from a year earlier, the latest statistics bureau data show.
Australia’s housing market was the fifth-most overvalued among countries in the Organisation for Economic Cooperation and Development relative to rents, the International Monetary Fund said in a December report. Canada was first, followed by New Zealand, Norway and Belgium.
Billbergia, a closely held developer in Sydney, reported selling as much as 85 per cent of its apartment project in the western suburb of Rhodes last year to Chinese buyers, even before beginning construction. Home prices in Rhodes jumped 27 per cent to a median $1.03 million in 2013, according to Australian Property Monitors.
‘Material driver’
“Anecdotally, Chinese buying has been a material driver of new-apartment purchasing activity in the last 12 to 18 months,” Scott Ryall, head of Australia research at CLSA Asia-Pacific Markets in Sydney, wrote in a report in September. “This is a significant potential tailwind for Australian property prices.”
By law, non-resident foreigners can only buy new homes, with exceptions to buy existing properties granted on a case-by-case basis.
While many Chinese immigrants buying in Australia pay cash, they take out mortgages for second or third properties to take advantage of tax rules, said Ray Chan, managing director of Sydney-based real estate broker Henson Properties, 95 per cent of whose clients are from China. Owners can claim tax deductions if expenses, including mortgage payments, are greater than their investments’ rental income.
Housing dream
The distinction between purchases by mainland Chinese and by Chinese who have already immigrated to Australia is blurry. Chen Youmea, 42, bought a two-bedroom unit under construction in Sydney in 2011 while she and her family were still living in China’s eastern Zhejiang province, near Shanghai. They moved to Australia in 2012, and within six months bought another three-bedroom apartment in the inner-city suburb of Pyrmont.
“Chinese people, we don’t want to rent,” she said. “We want to fulfill the dream of our own home.”
Chen planned to spend about $700,000 on a third property, she said while browsing at a November Chinese property expo in Chatswood, where 13.7 per cent of residents were China-born as of the 2011 census, up from 9.6 per cent five years earlier. Home prices in the suburb increased 12 per cent last year, Australian Property Monitors figures show.
“I agree to some extent that Chinese buyers are pushing up prices, but it’s good to have a bit of Asian investment to stimulate the market,” Chen said.
Squeezed out
Some buyers are finding themselves squeezed out. In a showroom in Macquarie Park in October, architect Warwick Mann and his father didn’t register for the sale of one- and two-bedroom apartments listed for almost $1 million and found themselves trying to get attention from agents busily catering to scores of Asian buyers.
“They’re not interested in selling to us,” said the younger Mann, 51, who said his retiree father, looking for a new home, lost his temper and left.
The 378 units all sold in four hours, three-quarters of them to Chinese buyers, according to marketer CBRE Group.
“It was an unprecedented level of interest in the development,” with about 870 people paying a $5,000 refundable deposit to register possible intention to purchase and receive priority, said Ben Stewart, a director at CBRE’s residential projects division, adding that agents do their best to also cater to walk-ins. “It was hard to keep everyone satisfied because we just didn’t have enough stock.”
Most unaffordable
Demand from China has also driven prices higher in other parts of the world. In Hong Kong, the most unaffordable housing market among 360 cities in a survey released this month by US-based urban development consultancy Demographia, home prices have doubled since 2009, driven in part by an influx of wealthy buyers from the mainland.
In Vancouver, where 15 per cent of the population speaks a Chinese dialect as a first language and which is the second-most unaffordable housing market in the survey, ethnic Chinese are the largest group of foreign buyers, according to auction house Sotheby’s. Mainland property hunters were the top overseas buyers of residential property in Singapore as of August, government data showed.
Sydney and Melbourne were also among the 10 most unaffordable cities for housing in the Demographia survey.
More than 20,500 people from China, Hong Kong and Taiwan settled in Australia in the year to June 30, according to immigration department figures. Another 219,000 came to Australia as temporary immigrants and students, the data show.
Online interest
Juwai.com, a website that lists homes around the world in Chinese, saw a 266 per cent increase in page views from China of Australian homes between January and August of 2013, according to the latest figures from the company. Australia is the second-most-popular destination for buyers from the mainland after the US, according to Juwai.
“There is strong interest in Australian property because of its stable housing market, regulatory protection and the all-important time zone,” which is two or three hours ahead of Shanghai depending on the time of year, Andrew Taylor, co-CEO of Hong Kong-based Juwai, said in emailed comments.
For Mann, who gave up helping his father search for a house and now plans to accommodate his extended family in a single residence, his current suburb of Epping and neighboring Eastwood no longer offer value for money, he said.
A three-bedroom brick home in these suburbs now sells for more than $1 million.
Home prices climbed 17 per cent last year in Eastwood, some 18km northwest of Sydney’s centre, to a median $1.1 million, and in neighbouring Epping, they rose 15 per cent, according to Australian Property Monitors.
Leaving China
About a third of residents in these suburbs claim Chinese ancestry and almost a fifth were born in China or Hong Kong, according to 2011 census data.
Instead, Mann chose to look in nearby Beecroft, a leafier suburb where median household incomes are 50 per cent higher than in Epping. Prices there are up a comparative 16 per cent, with a median price of $1.08 million.
“I’d much rather spend that sort of money here,” he said.
Behind the growing demand for homes in Australia is a push by Chinese to leave the mainland in search of better education for their children, a clean environment and higher income, CLSA’s Ryall wrote in the September report.
About 60 per cent of high-net-worth Chinese those with at least 10 million yuan ($1.8 million) - have left China or are considering it, according to Bain & Co.’s China Private Wealth report, released in May.
The number of people in this category with investments outside China almost doubled from two years earlier, the report said. More than half of high-net-worth individuals without overseas investments planned to make them, while 60 per cent of those who have them planned to increase them, it said.