Foreign buyer interest

Oct 25, 2017

There are early signs that interest from foreign buyers in the Sydney property market may be easing, driven by new NSW government laws, and a crackdown by China on overseas investment.

In good news for locals keen to get into the competitive Sydney market, the NSW government recently introduced changes to the tax rules for foreign investment in property.

The changes, an effort to dent foreign demand for Sydney property, doubled stamp duty on foreign buyers to 8 per cent, and lifted the land tax surcharge from 0.75 per cent to 2 per cent for foreigners.

At the same time, China’s government recently narrowed the window for investment to Australia, putting the brakes on companies spending big on overseas property development.

The change in official Beijing policy is another positive for local buyers. That’s because it’s likely to remove the impact of Chinese buyers on the property market, especially in sought-after Sydney.

The numbers on this are clear. For instance, according to a Knight Frank report released earlier this year, Chinese companies bought 38 per cent of all the residential property development sites sold in Australia last year, spending a whopping $2.4 billion.

Indeed, the average size of property development sites sold to Chinese companies in Australia last year was 21,045 square metres – 18 times bigger than in 2012.

Legacy Property CEO Matthew Hyder said foreign, especially Chinese, buyers looked to have toned down their enthusiastic activity in the Sydney market.

“There was a big push before June 30 for foreign purchases to settle under the old legislation in order to avoid the added stamp duty and land tax costs,” Mr Hyder said.

“We have seen a meaningful reduction in demand from the Chinese for off-the-plan apartments. This trend is positive for local buyers because it should open up more opportunities for them to purchase in Sydney, particularly when it comes to apartments.”

University of Sydney Business Professor, Hans Hendrischke, echoes Mr Hyder’s sentiment, pointing to other attractive locations, and more regulation, as factors denting Chinese demand.

“Australia has proven itself to be a preferred destination for Chinese capital, but we must be cognisant that the growth in investment is slowing compared to other parts of the world, such as the United States and the EU,” he said recently.

“Going forward, efforts by the Chinese Government to increase oversight and accountability for overseas investments as well as geopolitical factors are expected to have an impact on investment flows globally.”

NAB economist Alan Oster commented overseas purchasers were still active across the Australian market, despite moves by authorities to curb demand.

“Foreign buyers continued to play a role in Australian housing markets in the June quarter despite China’s crackdown on capital outflows into overseas property and a raft of new restrictions and taxes on foreign ownership introduced in the 2017/18 federal budget,” he said.

Sources:
http://www.knightfrank.com.au/news/38-of-australian-residential-development-sites-purchased-by-chinese-in-2016-–-up-by-12-010260.aspx

https://home.kpmg.com/au/en/home/media/press-releases/2017/04/maturing-chinese-investment-australia-1-may-2017.html

NAB Quarterly Australian Residential Property Survey: Q2 2017

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