2019 outlook for foreign buying

2019 outlook for foreign buying in Australia & New Zealand

BY CARRIE LAW, CEO, JUWAI.COM

The most frequent question I am asked around this time of year is about the 2019 outlook for Chinese property buying.

Here I try to give you some insight into what to expect in your local market.

Reliable Chinese buyers still like AU-NZ

In Australia, a Chinese buyer paid AU$4.5 million for a second-hand downtown apartment in Brisbane, a record for the building, ‘Abian’. The vendors, who’d bought the unit off the plan, made an easy $500,000 in profit — even after investing $200,000 in renovations.

In New Zealand, a 24-story Miamistyle apartment building planned for Auckland’s North Harbour set off a frenzy among local and foreign Chinese buyers when it was advertised online. The Chinese buyers snapped up 20 apartments per week.

As these examples and many others show, Chinese buyers are still important in both countries. They help soften effects of a slowing property market on vendors looking for as much value as possible.

Our estimate is that, when the final count is done, mainland Chinese buyers will have spent as much as US$129.3 billion on global real estate in 2018. That’s a growth rate of about 3% to 8% over 2017 levels. For New Zealand and Australia, we think Chinese buyer growth in 2019 will be flat. Given local market conditions and global economic risks, we don’t foresee rapid Chinese buyer growth in these countries in 2019. These numbers are all the more remarkable when you realize that they have grown from nothing within the last decade. The first year that Chinese began to really be noticed on international real estate markets was 2010, and that year they only bought $5 billion of real estate and mostly commercial.

It’s a good thing for local markets that Chinese buying is not expected to drop away in 2019. That’s because Chinese are the most spendthrift of foreign buyers. They account for more than one-fifth of foreign buying in both Australia and New Zealand.

Chinese buy more Australian property then do nationals of any other country. In fact, they buy twice as much real estate as the next closest country. In New Zealand, Aussies come first, greater China is number two.

Like water behind the dam

Chinese wealth generation is the key motor driving the wheel of investment.

The investment bank, Credit Suisse, counts 1.6 million U.S.-dollar millionaires in mainland China. Because of their prosperity, these individuals dominate the buying of international property. They currently hold A$13 trillion of assets. And their assets have grown by about 16% per year every year since 2011. On a population-wide scale, wealth per adult has more than quadrupled over the past six years in China. Consider that for a moment. Put yourself in their shoes and ask yourself, “If I were Chinese, how likely is it that I would be able to buy an overseas second home if I now had four dollars for every one dollar I had six years ago.” That’s how fast the economy is growing in China.

It’s not just their swelling bank accounts that explain Chinese property purchases. It’s also that they tend to trust real estate more than other assets. Because of low interest rates, the volatile stock market, and limited investment opportunities, Chinese put their savings into real estate at higher rates than other nationalities. Property today accounts for 53% of wealth held by Chinese adults.

Other research also suggests that Chinese demand for international property will only increase through 2025. In a 2018 survey for the Financial Times, Chinese overseas investors named residential property their favourite asset class.

The question for Australia and New Zealand is this: When will Beijing relax the restrictions that make it harder for Chinese families to move more money overseas to buy real estate? Because, when they do cut the red tape, you can expect to see a surge in investment in Australia and New Zealand.

CURRENT AND FUTURE INVESTMENT PLANS OF CHINESE OVERSEAS INVESTORS

80 70 60 50 40 30 20 10 0 INVESTED INTENDING TO INVEST

RESIDENTIAL PROPERTY STOCKS COMMERCIAL PROPERTY

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