While Chinese investors are often blamed for skyrocketing house prices in Sydney and Melbourne, a number of factors could see the demand for Aussie real estate from Chinese investors wane in the coming years, according to Erika Altmann, qualitative researcher at the University of Tasmania, and Zhixuan Yang, a lecturer in real property development and management.
A report released last year by KPMG and the University of Sydney found that investment in residential real estate by the Chinese is beginning to slow. As the gap in rental yields between the two countries continues to close and house prices in Australia escalate, our residential real estate is starting to lose its lustre, Altmann and Yang said.
Additionally, the lifting of restrictions on Chinese urban residential property ownership and Beijing’s more stringent clamps on money exiting the country are helping to dampen Chinese interest in Aussie real estate.
When house prices escalate, rental yields generally decline. This is due to the large amount borrowed by investors compared to what they receive in rental income. More specifically, though rental rates have increased significantly in Sydney and Melbourne, they have not kept pace with house prices. In fact, rental yields have fallen in most major cities. As a result, residential real estate investment in Australia is becoming less attractive as a long-term investment strategy for Chinese investors.
While the exit clamps enforced by the Chinese government may slow the flow of money leaving China in the short term, investors are likely to find ways to circumvent these exit clamps. Moreover, the lifting of restrictions on Chinese residential property ownership could refocus investment to choice property markets within China, said Altmann and Yang.
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