- Both the number and dollar value of foreign approvals to invest in Australia’s housing market tumbled in 2016/17, according to the Foreign Investment Review Board.
- Along with fees on foreign investment applications, experts from Juwai.com, a Chinese international real estate website, say capital control restrictions in China were another major factor behind the steep drop in approvals.
- After tumbling in early 2017, it says Chinese interest in Australian housing is starting to pick up again, driven by speculation that China may begin to relax capital controls in the period ahead.
Both the number and dollar value of foreign approvals to invest in Australia’s housing market tumbled last financial year, according to figures released by Australia’s Foreign Investment Review Board (FIRB) today.
From 2015/16, the number of approvals fell from 40,100 to 13,200, equating to a drop in value from $72.4 billion to $25.2 billion.
While the introduction of fees contributed, making investors picky about the properties they intended to buy, another factor was a noticeable drop in approvals from China, Australia’s largest source of foreign approvals in the prior financial year.
“The approvals data also reveal a decline in the total number and value of approvals for Chinese applications, largely driven by reductions in residential real estate approvals,” the FIRB said.
“This likely reflects a range of factors, including the introduction FIRB application fees, Chinese overseas direct investment capital controls and changing macroeconomic conditions.”
According to Carrie Law, CEO and Director of Juwai.com, a Chinese international real estate website, the slowdown was most apparent in the first half of 2017.
“The [FIRB] report covers the second half of calendar year 2016 and the first half of 2017,” she said.
“These half years were like night and day in terms of Chinese investment.
“In the second half of 2016, Chinese investment were investing in Australian real estate at an almost irrational pace. It was like money falling from heaven for vendors and developers.”
However, that all changed in early 2017.
China’s State Administration of Foreign Exchange (SAFE), an agency embedded in the People’s Bank of China tasked with drafting rules and regulations governing foreign exchange market activities in China, introduced stricter rules on outbound capital flows in early 2017, stating that currency purchases should only be for genuine needs, not for investment purposes including housing.
As Law suggests, and the FIRB convey, it clearly had an impact on Chinese demand for Australian housing.
It fell heavily, returning to levels not seen for several years.
“In early 2017, capital controls, financing restrictions, and foreign buyer taxes reduced Chinese investment to more reasonable levels,” she said.
However, after the abrupt slowdown last financial year, Law says that there are now signs that Chinese interest in Australian property is starting to pick up.
“Since November 2017, we seem to have entered a period of more sustainable long-term growth,” she said.
“Chinese buying enquiries for Australian property in March were 5.7% higher than the month before and in April they were 22.3% higher.”
And she says reflects a growing confidence that restrictions on Chinese outbound investment may be unwound, perhaps partially or fully, perhaps as soon as this year.
“China’s capital controls have worked,” she said.
“Today, China’s foreign reserves are up, the Chinese yuan is stronger, the flow of money out of the country has been reduced, and fears of a devaluation have virtually disappeared.
“The environment is changing.
“Rather than threatening further capital controls, the government is hinting it may unwind them. Buyers are beginning to anticipate a time, perhaps this year, when investing overseas again becomes easier.”
While Law has a natural interest in talking up the prospects for a lift in Chinese demand, there’s evidence emerging that policymakers may relax outflow restrictions in the period ahead.
Earlier this month, China said it will resume two key outbound investment schemes, allowing domestic financial institutions to invest in overseas securities, according to reports from Reuters.
These schemes were suspended more than two years ago as a bout of turbulence across Chinese financial markets prompted a sharp increase in capital outflows from the nation.
With China burning through its FX reserves in an attempt to shore up the Chinese yuan, the decision was made to implement tighter capital controls.
While the resumption of these outbound investment schemes does not mean restrictions have been eased for individuals, it indicates, as Law suggests, that there’s growing confidence among policymakers that once restrictions are removed, large capital outflows are unlikely to resume.
If they are relaxed, the level of Chinese interest in Australian property before they were implemented, along with continued growth in Chinese wealth, suggests demand for Australian property could easily increase again.
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