AUSTRALIA BOUNCES BACK

BACK IN BUSINESS

As Australia lets down its guard post-pandemic, the delicate dance between maintaining economic ascendancy and managing foreign ownership restarts

BY AL GERARD DE LA CRUZ

During the pandemic, we saw Australia emerging as a haven market where residential property prices have continued to grow. This has given confidence to Asian buyers who are looking for a second home especially when children’s education is concerned

Apissara Chairattanamanokorn, 24, came to Australia more than a decade ago for studies. But like scores of Asians before her, she has since opted to stay.

Real estate, among others, was a pull factor. “When I graduated from university, the property market was experiencing a boom period,” says the Royal Melbourne Institute of Technology (RMIT) University alumna. “Property growth was great, and it drew my attention into investing in properties.”

Asian property seekers return this year to a country which only months ago cast itself as “Fortress Australia” against a global contagion. International migration is making a resurgence, stabilising the Australian residential market just as it enters a correction period.

Offshore searches for homes to buy or rent on realestate.com.au, a REA Group portal, rose 23% in the year to June. Searches by mainland Chinese soared almost 432% year-on-year, followed by those from India (up 196.7%), Hong Kong (100.4%), and Singapore (35%). The rising demand is consistent with the flurry of arrivals, including 29,480 international students in June, since borders fully reopened in February. Close enough to Asia but also far enough away culturally, Australia offers neighbours the geographical equivalent of white adjacency. Othered by poverty, inequality and autocracy in their home countries, many Asians find sanctuary in an outwardly privileged society where Mandarin is the largest language spoken after English and over 710,000 Indian-born people live. More than half of the Australian populace now are born overseas or have immigrant parents: the first migrant-majority western nation. Since formally ending its infamous White Australia policies in 1970s, the nation has learned to navigate race relations more deftly than some other western countries. “If you see the crazy news from America, that stopped a lot of wealthy Chinese, especially in recent years, from going there,” says Benson Zhou, director for Melbourne CBD and metropolitan sales at Savills.

Australia’s economy wields a certain crossborder appeal to Asia. The country recorded in June an unemployment rate of 3.5%, the lowest since 1974, helping downplay talks of stagflation that dogged western countries after the Ukraine invasion.

But the current inflation rate, which at 6.1% is the highest in the country since 1990, worried the Reserve Bank of Australia (RBA) enough to hike the interest rate for four

GEOGRAPHICALLY CLOSE TO ASIA, BUT WITH DIFFERENT CULTURAL VALUES, AUSTRALIA HAS TRADITIONALLY BEEN SEEN AS A SANCTUARY FOR ASIAN INVESTORS

THE CHINA EQUATION

The appetite for property investment in Australia from a walled-off China is still scaled back.

Singapore has overtaken China as the top source Asian country for investment in Australian property, according to the Foreign Investment Review Board (FIRB). Real estate investments from Singapore hit AUD13.8 billion in 2020-21, compared with AUD6.3 billion from China.

“The slowdown of Chinese purchasers in the market is primarily due to the border being closed more than anything,” says Ivan Lam, head of international business at Charter Keck Cramer. “The gradual return of Chinese students back into Australia recently has benefited the student accommodation sector as well as the rental market in general, and it will continue to improve once China’s border restriction eases.” Post-pandemic Asian investors overall are coming up against a wall of restrictions on real estate acquisitions in Australia. Since 2020, FIRB has reduced the monetary threshold on investments in residential, national security, and vacant commercial lands from AUD55 million to literally nothing: AUD0.

“Australian governments were afraid a lot of offshore capital were coming to Australia, and they were snapping up all those financially stressed companies and assets,” says Benson Zhou, director for Melbourne CBD and metropolitan sales at Savills.

consecutive months into August. They mark Australia’s first interest rate hikes since 2010.

As mortgagers began souring on the market, Australian house prices fell by 0.43% in July, with prices in Sydney and Melbourne down more than 3% from their peak, according to PropTrack, a REA Group company. The decline in home prices will likely persist into 2023, with the RBA unleashing more hikes this year alone, analysts say.

On the flipside, property prices in Australia soared 20% on average last year on the back of lockdown-era interest rates, reports property advisor Charter Keck Cramer. “Essentially, Australia just doesn’t have enough homes to sell to keep up with our rising population and demand,” says Ivan Lam, the firm’s head of international business. “This year, values are still broadly rising but nowhere near as fast as they were in early 2021.”

Knight Frank noted that mainstream home prices in Sydney and Melbourne still grew by 16.1% and 9.1% year-on-year, respectively, in the first half of 2022. “During the pandemic, we saw Australia emerging as a safe haven market where residential property prices have continued to grow,” says Christine Li, head of research and consultancy at Knight Frank APAC. “This has given confidence to Asian buyers who are looking for a second home especially when children’s education is concerned.”

As Australia’s third-largest export, education buttresses the economy. Traditions now resume: Well-off parent buys apartment for child, child graduates and returns to home

MAINSTREAM HOME PRICES IN MELBOURNE GREW BY 9.1% IN THE FIRST HALF OF 2022

country, and apartment becomes investment property. Or apartment becomes starter home, the graduate working toward Australian citizenship or permanent residency.

Pathways to both are manifold. The 188C visa, for example, offers a five-year stay for an investment of AUD5 million (USD3.4 million), according to research from Charter Keck Cramer. This includes, to an extent, indirect investment in residential property through managed funds.

Apissara, who continued her studies at the Whitehouse Institute of Design, found that rental returns can go as high as 8% a year for lucky investors. Borrowers may also access equity built in the home by cash-out refinancing. “To own an Australian property is an asset to foreigners,” she says. “It would be very useful if they are thinking of migrating to WIZARDS OF OZ

Higher dwelling construction costs have driven the rate of household inflation in Australia, which increased to 6.1% in the June quarter, according to the Australian Bureau of Statistics.

Costs swelled as the government paid fewer construction grants, which would have reduced outof-pocket expenses for new dwelling purchases, while labour and building materials grew scarce and freight costs rose. New dwelling prices recorded their largest annual rise since the June 1999 quarter as a result.

“The current developers’ market is not very easy, to be honest,” says Benson Zhou, director for Melbourne CBD and metropolitan sales at Savills. “The rise of construction costs, the rise of interest rates, and the fact that offshore investment has not fully returned yet—all these elements will slow down the development market dramatically. At the moment, it’s very challenging.”

Developers based out of Southeast Asia continue to cast their nets further afield into Australia. Frasers Property Australia, part of Singapore-based multinational Frasers Property, for example is developing a coastal project, The Waterfront Shell Cove, in the city of Shellharbour. Kuala Lumpur-based KHK Group and Melbourne’s Beulah International are collaborating on STH BNK By Beulah, one of Australia’s tallest buildings.

“What I recently see from a lot of offshore developers and even local developers is that they are refining their design,” says Zhou. “So far, Asian developers are keen to build an apartment or townhouse project rather than a commercial development like a shopping centre or multi-tenant commercial assets, like drive-through fastfood restaurants, petrol stations, and aged care homes. Those are more like what local developers are doing.”

Western companies like the UK’s Scape still dominate the student accommodation sector. Student accommodation projects also tend to be moved through capital transactions, sold as entire buidings rather than strata titles.

“Student accommodations are generally quite small in size,” says Apissara Chairattanamanokorn, 24, an alumna at RMIT University in Melbourne. “Hopefully the rooms will be larger which can give students better comfortability.”

Australia.” Gains for those who have been naturalised or obtained residency are especially rewarding since they can purchase freehold landed homes and secondhand apartments, as per current Foreign Investment Review Board (FIRB) rules. Offshore buyers such as students’ parents are generally only allowed purchase of off-plan or new apartments.

In Melbourne and Sydney, the compounding rate of capital growth for landed homes is about 5% per annum, excluding rental returns, reports Lam. “Residential real estate in Australia is more of a long-term, stable-growth asset class in general. Capital growth is associated with land, and the residential category that therefore experiences strongest capital growth over time are established houses, followed by townhouses and apartments.”

But with open borders comes more gatekeeping of Australian real estate. Following a dramatic reduction of monetary thresholds on land acquisitions in 2020, FIRB in July doubled fees on foreign investment applications to anywhere from AUD4,000 to AUD1.045 million.

“The cost of buying has definitely increased. It’s not that friendly to foreign investors,” says Zhou. “That’s not going to help the current property developers because it’s all about the margin.”

Like their counterparts in Canada and New Zealand, Asians in Australia are—sometimes unfairly—linked to eroding housing affordability. Foreign buyers account for 5.9% of new home sales, according to recent National Australia Bank figures. “You have to draw the line,” says Zhou, who has lived in Australia for over two decades. “Otherwise, our housing price is going to go up to the roof.”

But with Asia delivering over 50% of the global GDP by 2030, Australia will always be tethered to its neighbours.

Having lived in Australia almost half her life, Apissara has come to understand the inextricable ties binding the continents she has called home. “Real estate is an important part of the economy,” she says. “Australia needs this sort of foreign investment to boost the economy.”

SET CLOSE TO THE VICTORIAN COAST, THE AWARD-WINNING RESIDENCES OF WILLOW BRIGHTON HAVE EXQUISITELY LANDSCAPED SURROUNDS, WITH RESIDENTS JOURNEYING THROUGH TREE-LINED STREETS TO REACH THEIR UNITS

ALIEN FORCES

Demand for Australian property has remained relatively robust over the past two years, with Sydney, Melbourne and Brisbane now commanding a median house price above AUD1 million.

Byron Bay, a hotspot for ultra-wealthy home seekers in New South Wales, will see price growth of up to 35% over the next five years, predicts Knight Frank. Many of the sales will come from Australia’s own: 32% of the wealth of the country’s richest people are now available as their first and second homes.

In 2021, 29.1% of Australia’s population were born overseas, with India overtaking China as the biggest overseas-born populace after England, according to the Australian Bureau of Statistics. There are now over 710,000 Indian-born residents, up 111% since 2011, with China, the Philippines, Vietnam, Malaysia, and Sri Lanka rounding out the six biggest Asian-born groups. Property seekers from China, India, and Hong Kong recently drove most of the search activity for rental properties on portals monitored by market insight provider PropTrack. Those from mainland China and Hong Kong mostly conducted their searches in apartment-rich areas like Box Hill and Glen Waverley in Victoria, also the favourites of Southeast Asian populations.

“The rental market is extremely strong at the moment,” says Benson Zhou, director for Melbourne CBD and Metropolitan sales at Savills. “The weekly rental has kept on going up. So, if you want to lease an apartment here, you’ll be sort of competing with 20 or 30 other people.”

Searchers from India mostly eyed properties around Tarneit and Point Cook in Victoria and The Ponds in New South Wales where house and land estates tend to be concentrated.