Wall of Chinese capital buying up Australian properties

house sold sign image www.realestate-au.net

It’s a vendors market in Australia at the moment, but how many Australians can afford to buy? Photo: Rob Homer

The “wall of Chinese capital” hitting property markets in Sydney and Melbourne will not ease up until the government introduces its anti-money laundering legislation, says an expert in ‘flight capital’.

James Tee, an ethnic Chinese property developer whose business specialises in “capital expatriation” – that is, getting money out of China and into his property developments in Malaysia – told Fairfax Media the exodus of capital from China was accelerating, thanks to the government’s anti-corruption drive.

“We have been tracking this for two years,” says Tee. Those outflows from China are compounded by the flight of capital out of Canada which is now “bursting” to find a home in Australia.

"There is a mountain of liquidity. China is bursting with flight capital," says James Tee.
“There is a mountain of liquidity. China is bursting with flight capital,” says James Tee.

Due to the bubble in Canadian house prices and ensuing concerns over social dislocation, Canada’s government shut down its investor visa program last year. Some 40,000 Chinese visa applicants with a minimum loan to governments of $C800,000 were handed back their capital.

“That’s roughly $32 billion,” says Tee. “The Canadian government said: ‘We don’t want your money anymore’ and that capital is now hitting the Sydney market.”

“There is a mountain of liquidity. China is bursting with flight capital. They can’t go to the US, they can’t get it into Singapore anymore, or Hong Kong.”

Tee’s comments come at a time of increasing concern that a generation of young Australians have been locked out of the property markets of Melbourne and Sydney due to spiralling house prices.

As reported here last month, there is at least a partial solution to the problem of housing affordability in enforcing the Anti-Money Laundering (AML) legislation the government promised to introduce eight years ago. Despite international pressure, however, successive Australian governments have dithered on introducing the second tranche of AML which covers real estate.

Tee says that if real estate agents were required to comply with AML – as was already required of fund managers and casinos – the bulk of the capital inflows would cease, and therefore moderate the rise in house prices.

The $US50,000 limit on exchanging Chinese currency into $US and $A was being breached in the majority of Chinese property deals in Melbourne and Sydney, and once the AML laws were introduced, the “wall of capital” from China would dry up.

Tee, a colourful entrepreneur educated at Harvard, admits he is “talking his own book”. As a Malaysian property developer, his Titan Square project in Malaysia stood to benefit from Chinese capital, so he had a vested interest in Australia addressing the problem of excessive Chinese capital inflows in metro property markets here.

Nonetheless, he makes a valid point. Property prices in Sydney and Melbourne don’t reflect market fundamentals as Chinese investors are not worried about a property crash since their principal objective is parking money in a secure environment offshore rather than achieving an investment return.

“That means they can afford to take a 20 per cent to 30 per cent haircut,” says Tee.

“Sydney becoming like Singapore and Hong Kong where an entire generation has been locked out of the property market. There are social consequences for this.

“I don’t think anybody understands just how much money is coming in. The anti-corruption drive in China … they [the government of Premier Xi Jinping] are really serious about it”.

Indeed, the dramatic effects have been felt in Macau where the crackdown on black money leaving China has seen gross gaming revenues drop by 39 per cent in the month of April, representing 11 successive months of decline.

“Obviously the slowdown in Macau is more severe in truth than any of the operators foresaw. I don’t think any of the operators could have predicted what has happened now,” James Packer told CNBC last month. “As an Australian investor in China and Macau, it’s very hard to be critical of a corruption crackdown … [but] when and how that ends is something that no one knows.”

Packer’s Crown casino business has large casino operations in Macau.

Tee says recent figures in the media which put Chinese investment in the Sydney property market at 25 per cent of total sales were too low. He says it might be twice this level but it is hard to tell because of the lack of transparency on ownership.

Most Chinese purchases hide behind trustees and proxies. Third parties such as friends and relatives were often used.

“Chinese students are being paid 2 per cent of the purchase price of the property to purchase property on behalf of relatives,” says Tee.

Another person au fait with Chinese property transactions in Australia told Fairfax Media it was simple for Chinese investors to get around the foreign capital restrictions.

“The money never really moves. In a simple example, Kunlun is a forex trading and money exchange company. It has bank accounts in many countries with significant cash balances. So if someone wants $40 million in Australia they put the money in a Kunlun China account and Kunlun transfers the money from their Australian accounts to the person’s friend’s Australian account.

“Kunlun is just one example – any large trading multinational will hold large reserves of cash in each country so they can effect a transfer with an internal paper transaction. No banks or government scrutiny involved. And given that they don’t do effective reporting in this country, who will ever trace it?

“The current situation is that one of the best assets a local Chinese can have is a permanent Australian residence. They will have ‘friends’ lining up to ‘loan’ them money to buy properties in Australia.

All the government needs to do is follow the cash.”

Sadly, for a generation of young homebuyers it seems the government is not interested in following the cash. Otherwise our politicians, of both major parties, would have introduced the second tranche of AML legislation by now and real estate agents would have to prove that their clients’ funds were legitimate.

ooo
Henry  Sapiecha

Residential property in Australia is expected to soften says AMP rep

city skyline tall buildings image www.realestate-au.info

Our position has been that the large, dominant shopping centres will be best equipped to combat retail headwinds and the changes announced in this year’s budget add further conviction to this view. After a period of low interest rates, we believe that the residential housing market will soften, leading to more sustainable levels of growth. We welcome further commitments to major infrastructure spending as this will benefit all real estate sectors – residential, office, retail and industrial.

While we expect better momentum in Sydney and Melbourne, we expect Australian businesses to remain focused on cost containment and restructuring until strong economic growth returns. Our research suggests it is important to focus on population growth areas/cities, dominant assets and core locations and to deepen the ‘destination’ and experiential feel of assets to attract customers and staff. This will help offset flatter or declining accommodation demand over the long term.

From a macro perspective, the weight of money into real estate is understandable. Global bond yields remain near all-time lows and are well below the levels of potential economic growth. Part of this is due to monetary policy, part is due to risk perceptions, and part of it is due to the sluggish nature of the global recovery so far

ooo

Henry Sapiecha

Point Piper Sydney Harbour Views Australia apartment sells $1 million above set reserve

sydney harbour view images www.realestate-au.info

$1 million over reserve

gavel images www.realestate-au (3)

Buyers go to battle for a dated apartment on Australia’s most expensive street.

The auction of a Point Piper apartment stunned onlookers on Saturday, when it sold for $1 million over its reserve price.

The three-bedroom apartment at 9/45 Wolseley Road sold for $4.1 million.

It was one of 853 auctions scheduled to go under the hammer in Sydney on Saturday. Domain had collected 657 results by Saturday evening and put the clearance rate at 87.4 per cent, up on last week’s 84.2 per cent.

sydney harbour penthouse interior with view image www.realestate-au.info

This unit at 9/45 Wolseley Road sold for $4.1 million on Saturday – $1 million over reserve.

Despite its position on Australia’s most expensive street, sales agent Stephen McMorrow of McGrath Edgecliff was stumped by the result.

“Last year, [an apartment on] level five sold for $2.95 million, and this one also has a lot of work to be done on it to make it modern,” he said.

“It just goes to show, you can’t put a price on a view like this.”

auction bidding on sydney harbour view penthouse image www.realestate-au.info

Bidding for the three-bedroom apartment was rapid-fire. Photo: Christopher Pearce

Five of the 10 registered bidders were active on the day, with rapid-fire bids of $50,000.

The winning bidder was a local buyer who declined to discuss his plans for the home.

The whole-floor residence has panoramic views over the harbour, with the city skyline, bridge and opera house in full view.

sydney penthouse harbour view pic www.realestate-au.info

An agent said the apartment needs a lot of work to be done on it to make it modern.

Throughout the campaign, interest was solely from owner-occupiers, including parties from Brisbane, Melbourne, Sydney and Singapore.

Auctioneer Scott Kennedy Green said the area is tightly-held and attributed the high level of interest to the blue ribbon address.

“Top quality real estate like this won’t decrease in value, and it is going to attract the kind of competitive bidding we saw today.”

The home last traded in 1968, after it was bought off the plan for $93,750 by Veronica and Arthur Laundy, the founder of the Laundy Hotel Group. “Aussie” John Symond’s $50 million compound is within shouting distance.

Long-time neighbour Vivien Jackson was at the auction to gauge what her home might be worth.

“I wanted to see what this went for today, because with prices at the moment, it could be anything.”

According to Domain Group figures, the median price of Point Piper units has grown 21.3 per cent in the past six months to $1,657,500.

Domain Group economist Dr Andrew Wilson said the Point Piper median was volatile due to the low number of sales.

“Point Piper is an iconic suburb, recognised for ultra-prestige, there is not a lot of turnover, not just because of stratospheric prices, but it is geographically a small suburb,” he said.

“That market was down since the GFC, but volumes have picked up recently, and homes will always find a buyer there.”

In the past year there have been eight house sales in Point Piper at $28 million or more.

ooo

Henry Sapiecha

CHINA BUYING UP AUSTRALIA

China’s $60b Aussie property splurge

Investment in Australia residential property by Chinese nationals and migrants is surging, UBS reports.

2:33pm | Chinese investors and immigrants forecast to pump another $60 billion into the market over the next six years

OVERSEAS BUYERS OF AUSTRALIAN PROPERTY TO FACE HIGHER PENALTIES

asian people in street image www.realestate-au.info

At present, the harshest penalty for real estate breaches is seen by some as a slap on the hand. Photo: Supplied

Foreign buyers face tough new penalties for flouting property ownership rules, as well as capital gains losses and cross-matching with immigration records, under likely recommendations by a parliamentary inquiry.

Foreign investment in residential property has been the subject of an inquiry, chaired by Coalition MP Kelly O’Dwyer, which has delayed handing down recommendations until late November to allow time for consultation with state governments about introducing a national property owners register.

Ms O’Dwyer told Fairfax Media the inquiry was considering beefing up penalties for foreigners who flout real estate laws, to make them proportional to the value of the property purchased.

“The largest penalty fee that can be imposed is about $85,000. We have been told by many witnesses that that is simply seen as the cost of doing business,” she said.

The inquiry was also likely to recommend that foreigners who are forced to divest a property lose the capital they have accumulated in the dwelling between buying it and selling.

The current system, which allows them to keep profits, was “clearly creating the wrong sort of incentive. It’s creating an incentive for bad behaviour,” she said.

Ms O’Dwyer renewed previous criticism about the performance of, and data collected by, the Foreign Investment Review Board, suggesting its information was flawed by assuming all foreigners followed the rules and submitted applications to buy property.

“I can’t see any explanation as to why it is that there have been no prosecutions since 2006. I’m a bit bemused at what processes exist there [in the FIRB],” she said.

Temporary resident visa holders are required by law to sell their dwellings once they leave the country.

But the Department of Treasury, under which the FIRB sits, submitted to the inquiry responses taken on notice suggesting it had not been able “in the time available … to determine the number of foreign investors who have voluntarily disposed of their properties”.

“We’ve gone back to them to say they’ve got a bit more time now, and we’re looking forward to their response,” Ms O’Dwyer said.

Treasury listed only three instances of foreigners – Russian, Bangladeshi and Swiss citizens – being prosecuted under the Foreign Acquisitions and Takeovers Act, all before 2006.

“Treasury is currently investigating the acquisition of foreign interests in 33 residential real estate properties. All of these properties are in the established residential category, with a small number involving very high-value established purchases,” it said.

Henry Sapiecha

CHINESE INVESTMENT GROWING INTO AUSTRALIA

Adrian Sum from Sino Ocean Land, one of China's largest property developers image www.realestate-au.com

Adrian Sum from Sino Ocean Land, one of China’s largest property developers

It’s a “defining moment for Melbourne”, the tower’s website states, That may be truer than the marketeers realise.

By Mr Sum’s standards, Eq is small. His Beijing-based company’s average property project is 10 times Eq’s size, with the largest reaching 1 million square metres, roughly the size of eight full city office blocks.

Happy but not satisfied with his initial investment, Mr Sum is already on the lookout for more Australian assets. He also has a $200 million mandate to seed an office fund over the next year and, with joint venture partner ICD Property, is eyeing other opportunities in Sydney.

<p>

“Because the Chinese capital is huge and the direction to go overseas is quite clear, that means that this will accumulate,” Mr Sum says.

He’s not the only one. A new Chinese entrant, Sichuan-based Xiang Xing Group, this week spent $35 million buying a development-ready site in Melbourne’s Southbank.

Another huge state-owned enterprise, Shanghai-based Greenland Holding Group, already has four projects on its books worth $1.4 billion.

Developer: Greenland Holding Group; Development: Sydney Water Board; Site: Sydney; Cost: $600 million.
Developer: Greenland Holding Group; Development: Sydney Water Board; Site: Sydney; Cost: $600 million.

Its signature $600 million tower on the former Sydney Water Board site will become the city’s tallest residential building.

In North Ryde, China’s richest woman, 33-year-old heiress Yang Huiyan, is heading up Country Gardens’ $500 million project, and Fuxing Huiyu Real Estate has launched apartments worth $550 million in Parramatta.

Chinese investors are aggressively lifting their Australian residential and commercial real estate investment at a time when the Reserve Bank is warning bubbly property markets could be hit with a price correction

Developer: Sino Ocean Land; Development: Eq Tower, Melbourne; 63 levels, 633 units.
 Sino Ocean Land Development: Eq Tower, Melbourne; 63 levels, 633 units.

Alarmed by the property frenzy in Sydney, Melbourne and parts of Brisbane, the Reserve hit the headlines two weeks ago, putting banks on notice they were being monitored and potentially facing tougher controls, so-called macro-prudential tools or constraints on lending.

It was reacting to momentum that has been building since this time last year, when it issued another warning about the explosive growth of self-managed superannuation funds’ property debts and the risk they posed to the country’s financial system.

That in turn kicked off a familiar bubble debate which has played out over the intervening 12 months. “No housing bubble here, says Hockey” a 2013 headline re

Developer: S P Setia Berha; Development: Parque, Melbourne; 19 storeys, 332 apartments.

Foreign investment has become an even greater force in driving up prices over the past six months, the property industry believes.

The October Australian Property Institute Property Directions survey found 96 per cent of Sydney respondents felt foreign investment was a significant driver, more than the 88 per cent it registered in May.

Australia’s exuberant property market shows no sign of abating, pushed by fierce competition and local and international investor’s enthusiasm.

Rod Fehring, Australand.
Rod Fehring, Australand. Photo: Robert Rough

Spurred by a record 15-month run of historically low interest rates, Australian dwelling values rose 9.3 per cent over the 12 months to September. Sydney’s homes rose 14.3 per cent and Melbourne’s 8.1 per cent over the same period, RP Data figures show.

Investors paused for breath in August, housing finance data shows, with loans falling slightly by 0.9 per cent. But debt for new dwellings continued its upward trajectory, rising a healthy 2.5 per cent.

Adding to the Reserve’s headache will be the latest housing debt data. It shows the average Australian household’s ratio of debt to disposable income, or the proportion of wages spent servicing mortgages, has hit a record high.

Mark Wizel, CBRE.
Mark Wizel, CBRE. Photo: Josh Robenstone

Some property observers maintain the current frothy market is not an evolution but a revolution that is here to stay. With the world’s wealth funnelling in, it is not difficult to see why.

Australia’s property market is operating in an international context now, says Sam Nathan, a former analyst at Charter Keck Cramer.

Sydney and Melbourne are on a par with other global cities where apartment markets, particularly in city centres, are “now driven by geopolitical influences as international developers diversify from their country and market of origin,” he says.

Illustration: Simon Bosch.
Illustration: Simon Bosch.

London’s huge £8 billion ($14.7 billion) redevelopment of the Battersea Power Station is being led by Malaysian firm S P Setia Berhad, which is also building the upmarket Parque apartments at 555 St Kilda Road in Melbourne.

When Australia emerged from the 2008 global financial crisis with a stable economy and one of the strongest property markets in the world, it became a tempting foreign investment target.

The investment trickle became a flood as prices racheted up in London, and Singapore, amid fears of the island city’s housing overheating, introduced restrictions on local and foreign ownership. They were soon followed by Hong Kong adding an extra 15 per cent stamp duty on overseas buyers and Canada cutting its millionaire visa program.

Aided by Australia’s liberal foreign investment rules which allow unlimited sales of new homes, Chinese investors and newly arrived immigrants spent $24 billion on Australian residential real estate over the past seven years, a well-publicised Credit Suisse bank report estimates.

And they will spend nearly double that, another $44 billion, over the next seven, starting with about $5 billion this year, it says.

The home buying spree does not include other transactions.

Across all other sectors, excluding residential real estate, China last year spent $11.1 billion, second only to its direct investment in America, KPMG and the University of Sydney’s Demystifying Chinese Investment in Australia index shows.

Most went to buying Victorian electricity assets, gas or mining deals around the country, with commercial real estate taking a relatively small 14 per cent share.

The rise of Asian property investment over the past five years is different to the wave of Japanese capital that washed through the Gold Coast and other Australian regions in the late 1980s, investment bankers CLSA say.

That boom-to-bust cycle saw investment by highly-leveraged, yield-chasing Japanese corporations rise from zero to $65 billion in the space of a few years, only to collapse again by 70 per cent in 1992, with billions eventually wiped off their balance sheets.

In Queensland, particularly, the pain was felt for years.

International agency CBRE says the source of global investment flows into Australia has inverted over the past two years, with Asian capital now taking two-thirds of total property investment and other countries one-third.

“The mix in the source of capital to Asia is likely to continue, with more capital emerging from Asian markets and Australia attracting an above-weight share of these flows,” its most recent Capital Attraction report says.

It is an investment thesis that Mr Sum supports.

For the past two years China’s central government has been relaxing requirements for outbound investments that require its approval.

“They know that to invest overseas can sometimes serve as risk management to balance their portfolio. This is not just happening to individuals, the whole country shares in this kind of mentality,” Mr Sum says. “It is just the beginning of a long-term vision, this goal to go overseas.

“Even the corporates, like insurance companies, are starting to allocate a certain percentage of their investment portfolio into different overseas markets.”

A new raft of easing policies will come in October this year, Savills’ Hong Kong-based research director Simon Smith said this week. They are likely to further spur the flow of money heading overseas looking for better returns.

China has been booming for a decade but is now showing signs of slowing. “Now in our own market, more or less, we have reached certain capacity,” Mr Sum says.

Its housing is in oversupply. The number of apartments in Shanghai is expected to double next year to total 1.1 million square metres. One new project in Shanghai’s redevelopment precinct is the size of both Melbourne and Sydney’s CBDs put together, Mr Smith says.

As a result, house prices, which rose to record highs for five consecutive years, are now experiencing a sharp deceleration.

China’s developers are being encouraged to go overseas and get experience with other countries’ rules, regulations and cultures, either on their own or in joint ventures.

“Their main hurdles are lack of expertise and capability, so they are just dipping a toe in the market. They want to get practice,” Mr Smith says, and they can “afford to fail”.

The capacity of large Asian firms to self-finance, build and sell Sydney and Melbourne apartments to overseas buyers has radically changed the dynamics of the property market, CBRE’s Mark Wizel says.

“The motivation of the developer and apartment buyer are aligned.” Mr Wizel says. “The part that nobody really saw was the explosion of interest from mum and dad Chinese investors, who are buying apartments off-the-plan with the same level of aggression and vigour as the developers are buying land.”

Overseas property is a prized asset for wealthy Chinese keen to park their money and mitigate the economic and political risk of having it tied up in the People’s Republic.

Vancouver, London, Sydney and now Melbourne are the cities of choice.

Feeding their desire is a passion for property that even surpasses Australia’s love of realty.

An astonishing 10 million of China’s newly-minted top-income families aspire to emigrate here, CLSA estimates in an August report, Chinese Investment and Oz Housing.

Chinese nationals were the second-largest group of permanent migrants behind British citizens last year, and made up the largest share of international students, according to Australian government figures.

Servicing just half of that desire would fill Australia’s current annual net overseas migration quota for the next 61 years.

“Their motivations aren’t always about saving. A lot of Chinese have an end goal to emigrate here,” says Joseph Zaja, whose Ausin Group is on target to sell 2000 Australian apartments and new homes to Chinese buyers this year.

“The majority are very conservative. They’re buying to diversify their wealth into an established property market and economy such as Australia.”

They want clean air, a good education and a solid legal system.

“Chinese residents want to emigrate to English-speaking countries, where there is a strong common law process. A good education system is essential and, as China’s pollution problems escalate, a clean environment is becoming more important,” CLSA’s report says.

“I don’t think there’s any chance of it ending any time soon,” Mr Wizel says.

Forty per cent of Eq Tower was sold to offshore investors, a not uncommon occurrence in today’s international market.

They are a big factor even for local developers. Offshore buyers take between 13 and 20 per cent of Meriton’s apartments without any direct marketing, Sydney billionaire Harry Triguboff says.

Within two years the proportion of overseas buyers in Australand’s developments has risen from 5 to 18 per cent, executive general manager of residential Rod Fehring says.

“It’s quite a substantial change because Sydney has come alight. It’s always been an attractive location for investment and, surprise surprise, the projects that we’re producing are attracting offshore interest,” he says.

Melbourne’s skyline will blossom with another 42 new skyscrapers to cater for demand if the state government approves all current proposals over 25,000 square metres on its books when there are already fears of a big oversupply.

Amid the hum of activity, there are warning signs of overreach.

In echoes of Queensland’s previous Asian-led property boom, one of China’s largest property developers Dalian Wanda – headed by the country’s richest man, the flamboyant and acquisitive Wang Jianlin – will splash out $1.7 billion on local real estate, starting by developing the Gold Coast’s Jewel high-rise and hotel complex.

Mr Jianlin’s ambitious international expansion has seen him purchase the US’s largest movie chain, AMC Theatres, Sunseeker Yachts and two London high-rises.

Aggressive buying, primarily by overseas developers, has seen Melbourne’s CBD land prices triple over six years, Charter Keck Cramer figures show.

But the construction multiplier effect is supporting jobs, building material businesses and white good manufacturers, a sizeable section of the economy.

Some companies which have a strong pipeline of forward projects, such as Lend Lease, Fletcher Building, Mirvac and Goodman, stand to benefit most from the boom.

“Goodman may seem like an odd choice for a residential beneficiary, but it has identified that it can develop 35,000 apartments in Sydney and Melbourne, converting from its inner-ring industrial assets,” CLSA says.

For Mr Sum’s company, Australia is the first stop in its global expansion. “We are not doing the investment decisions in a haphazard or subjective way,” he says.

“China has reached another stage. They have got to consider overseas investments. It’s a new beginning; $200 million is a humble figure but it is talking about our commitment.”

Henry Sapiecha