Global property markets, including Australia, are likely to feel the impact of increased restrictions by Chinese authorities on foreign investment in the second half of this year.
The South China Morning Post (SCMP), says China is ramping up its crackdown on capital leaving the country.
The United States, Hong Kong and Australia, were the top three investment destinations in 2016, with the UK and US the key focus in the last six months.
More than a quarter (26%) of foreign property investment in Australia came from China last year, followed by the US at 25%.
“Transaction volumes will definitely go down in the hot destinations, and property prices could also be affected,” Hans Kang, chief investment officer of InfraRed NF Investment Advisers, told the SCMP.
Investment by Chinese firms surged in 2013, encouraged by authorities who then became concerned about capital outflows and the trend began to reverse in 2015.
Here’s what the SCMP says on how the crackdown is reducing capital flows:
On Friday, the State Council said it would restrict overseas investment in a number of areas including property, hotels, the film industry and other forms of entertainment, and sports clubs. Investors would have to seek special approval from the regulators for such ventures.
The retreat is already being felt in global markets. Outbound property investment by mainland Chinese firms was down 82 per cent in the first half from a year ago – and it’s expected to plummet 84 per cent for the whole year to US$1.7 billion, according to Morgan Stanley. The total investment in 2016 was US$10.6 billion.
While foreign buyer activity in Australia’s property market moved higher in the June quarter, the continued crackdown on Chinese capital flows means investment levels will likely slow in the current quarter.
The retreat of Chinese property buyers could have a serious impact on the Australian construction and property industries with one insolvency analyst saying that more than 2000 local construction companies are at “high to severe risk” of failing in the next 12 months.