Yet Australia’s appeal to many Asian buyers endures, and by some measures it is growing. While the heyday of Chinese investors pouring huge sums of money into Australian residential property is long gone, Chinese buyers are back.
In the second quarter of last year, mainland China was the largest source of investment for approved residential property investment proposals. Both the number and value of transactions rose sharply compared with the previous quarter, according to data published by Australia’s Treasury last November.
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Chinese investors offloading overseas properties
Chinese investors offloading overseas properties
This chimes with survey data published by National Australia Bank showing that foreign buyers accounted for 11 per cent of purchases of newly built homes in the final quarter of last year, the fifth straight quarterly rise and the highest proportion since 2017. The proportion rose to 15 per cent in New South Wales, while in Western Australia it hit a record high of 14.2 per cent.
Last month, JLL announced it had set up an Asian residential development sales platform to connect Asia-based clients with new-build opportunities for both self-use and investment purposes in Australia’s major cities. The aim is to secure sales mandates from leading developers seeking to sell a portion of their units to foreign buyers.
One factor contributing to the appeal of Australian residential property is the diversity in market conditions. In Perth, the capital of Western Australia, high levels of interstate and overseas migration have turbocharged demand, leading to faster rental growth and stronger capital gains. In the past three months alone, house prices in Perth have risen 5.2 per cent, compared with a decline of 0.6 per cent in Melbourne, according to CoreLogic.
Moreover, Perth benefits from higher affordability, with median home values about 37 per cent lower than in Sydney, offering more scope for capital appreciation. “Each capital city is at a different point in the cycle,” said Darien Bradshaw, head of residential development sales, Australia, at JLL in Singapore.
Yet it is the coalescence of domestic and external factors that is driving demand from Asian buyers. Record levels of net migration, China’s housing crisis, the stability of Australia’s economy and the prestige of its universities, plus the growing importance of Asian private wealth are the main reasons for the renewed surge in foreign purchases of Australian homes.
The country’s safe-haven appeal is an equally important factor in the commercial sector. As one of Asia’s most mature, liquid and transparent real estate markets, Australia remains the preferred destination for cross-border investment along with Japan and Singapore, according to CBRE.
Even though the share of foreign purchases last year fell to its lowest level since 2010, institutional investment in rental housing and student accommodation – the two sectors that benefit most from overseas migration – reached A$3.1 billion. That is the highest annual level on record, according to MSCI.
In what the data provider calls a “watershed moment” for the country’s build-to-rent (BTR) sector, more than half the capital deployed by Japanese investors in Australia last year was in commercially operated rental housing. Mitsubishi Estate and Daiwa House, two large Japanese developers, have teamed up with local home builders to develop BTR schemes in several of Australia’s capital cities.
Chinese buyers are not the cause of Australia’s housing woes
Chinese buyers are not the cause of Australia’s housing woes
Simon Treacy, chief executive of private equity real estate at Singapore-based CapitaLand Investment, said Australia “punches way above its weight” in global real estate markets. Given the desperate need for new homes in Australia, it is surprising that the BTR sector did not develop sooner, he said.
Australia’s underserved purpose-built student accommodation market is also attracting investment from Asian buyers who are drawn to the sector’s strong fundamentals. Although the share of international students at Australian universities – of which about a third are Chinese – is the highest among leading Western economies, the penetration rate of institutionalised student housing is the lowest, according to CBRE.
Singaporean investors continue to plough money into the sector as overseas student numbers hit a record high of 650,000. Strong rental growth in that market has been a key factor driving investment. However, it also risks triggering a populist backlash against immigration. The Grattan Institute notes that “Australia’s international education sector delivers huge benefits to Australia, but it also leads to higher rents, hurting vulnerable Australians”.
The best way to address the housing affordability crisis is to make it easier to build new homes. To its credit, the government has taken steps to facilitate foreign investment in the BTR sector. While this is not going to move the needle on supply, it should help attract more overseas investment in rental housing. Australia’s appeal to Asian property buyers is unlikely to wane.
Nicholas Spiro is a partner at Lauressa Advisory
