Chinese investors are snapping up Australian residential property at an ever-increasing rate.
According to figures released by Credit Suisse last month the value of Chinese residential property purchases totaled $8.7 billion in the 2013/14 financial year. This, according to estimates provided by the bank, represented about 15% of all new home sales seen over the time period.
Unsurprisingly given they are the two largest housing markets in Australia, most of the buying was concentrated in Sydney and Melbourne. Credit Suisse suggests that 23% of new homes sold in Sydney, and 20% in Melbourne, were bought by Chinese buyers.
While big numbers already, it’s likely to grow in the years ahead. Credit Suisse estimates that Chinese residential property purchases will surge by $60 billion over the next six years, more than double the $28 billion spent in the six years to 2013/14.
So what is driving the surge in Chinese activity in the property market? While there are numerous factors at play, perhaps the most influential reason is the recent fall in the Australian dollar.
These simple-yet-effective charts supplied by IG Markets’ chief market strategist Chris Weston shows that while Sydney and Melbourne residential property prices look expensive in Australian dollar terms, when converted into Chinese yuan, they are at the same level, or lower, than what was seen several years ago.
The chart below, using data supplied by Corelogic and Bloomberg, shows the median Sydney property price over the past three years. As you can see, while in Australian dollars prices have surged, thanks to its depreciation against the Chinese yuan, prices have gone nowhere for Chinese buyers.
And here’s the same chart, only for Melbourne. To an offshore Chinese investor, prices have actually fallen over the past three years.
As Weston rightfully points out, while prices are looking expensive to Australians, that’s not the case for some Chinese investors.
“If we look at property prices then in AUD terms one can clearly see the rampant trend higher since late 2012, which supports the arguments of those who believe markets like Sydney have ‘bubble’ like qualities. However, when adjusting price into Chinese yuan and looking at the adjusted prices through the eyes of an unhedged investor you can see that things don’t look so frothy”.
Indeed. Along with other factors, relative stability in the AUDCNY exchange rate for one, it goes a long way to explaining why Australian residential property is so attractive to Chinese investors, and why their involvement looks set to increase.