Despite a fall in Chinese investment, Australia remains attractive to overseas buyers

Despite a fall in Chinese investment, Australia remains attractive to overseas buyers

Foreign investor interest in Australia remains strong, the Foreign Investment Review Board chair David Irvine suggests.

The latest FIRB report on foreign investment showed the US recorded a $10 billion increase in approved investment to $36 billion in 2017-18, with significant increases in real estate and the manufacturing, electricity and gas sectors.

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China was the second largest source country with a $15 billion decrease in approved proposed investment to $23 billion.

The reduction in approved Chinese investment was due to falls across all investment sectors, especially property.

Chinese investment in real estate dropped to $12.7 billion in 2017-18 from $15.3 billion the year before, though China accounted for a quarter of foreign real estate investment.

Victoria gets the greatest share of Chinese residential investment, receiving 46 per cent of all approvals, with NSW in a distant second with 23 per cent, followed by Queensland’s 17 per cent. The data doesn’t track people who don’t need to request approval, which means NSW might be actually getting more investment.

Chinese buying is being impacted by several factors, local and international. There’s been the unexpected cancelling of promised mortgage loans by Australian banks, plus the higher foreign stamp duty taxes, along with Chinese government capital controls making it more difficult to move money from China, suggests Carrie Law, the boss of the Chinese property portal Juwai.

“We expect Chinese buying to be flat in 2019,” Law thinks.

I don’t think we ought regard the recent trend as permanent given tailwinds that will support Chinese buying, including the still-strong Chinese wealth growth.

There is the desire to get a bargain while the market is soft. Plus Law suggest there is a lack of investment opportunities in China, along with a possible shift in investment from the US to Australia due to any emerging trade war.

Additionally, the Yuan’s weakness is not holding back investment in property as there is an advantage in currency rates in favour of Australia compared to other major countries.

The Chinese also lack appealing alternative investments at home.

Interestingly, the Federal Government’s crackdown on residential properties held by foreigners in breach of the foreign investment rules uncovered just 131 now sold illegally held properties in 2017-2018. No nationalities were advised in the figure which was up slightly from the 96 ordered forced sales in 2016-17.

There were other breaches that did not see any forced divestment.

More than half the breaches identified were residential property in Victoria, while 20 per cent related to property in NSW after the Australian Taxation Office (ATO) completed around 1400 residential real estate investigations during the year.

ATO data matching analysis is an increasingly important in compliance investigations.

Data matching made up 63 per cent of the 1,700 cases investigated in 2017—18.

Although information received from the community is a source of intelligence, only a small proportion actually involved a breach of the Act.

The report noted in most cases the owners of the properties reported by community members were found to be Australian citizens or permanent residents.

That suggests we might a little too quick to judge our new neighbours.

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