The severity of the coming housing downturn will be less catastrophic than many fear, due in part to the insatiable Chinese appetite for Australian property, reveals a new report from Credit Suisse.
The report also analysed the impact of Chinese investment on the Australian housing market.
Growth is most apparent in Sydney and Melbourne, and the former is now the second most expensive major city housing market in the world, according to Demographia. Melbourne follows closely behind, and has the sixth most unaffordable major city housing market in the world.
Since 2009, house prices in Australia’s two largest urban centres (i.e. Sydney and Melbourne) have risen by 106% and 89% respectively.
Credit Suisse aimed to understand the impact and scope of Chinese buyers on house price growth, and the resulting report is based on freedom of information act releases on foreign-buyer tax payments. As both NSW and Victoria tax foreign buyers, these tax payments provide a new window into the scale of activity.
Buyers who do not possess an Australian passport purchased $4.9bn of NSW housing and $3.1bn of Victorian housing last year.
“We find that foreign buyers are currently purchasing NSW and Victorian housing at an annualised rate of A$8bn. This is equivalent to 25% of new supply in NSW and 16% in Victoria,” the report said. “China dominates the list of foreign buyers and currently accounts for almost 80% of all international demand. There has been a noticeable pick-up in foreign capital entering Sydney and Melbourne in late 2016. Despite the numerous impediments [such as Beijing’s clamp on capital outflows], Chinese buyers continue to finance their Aussie purchases.”
Credit Suisse said the Australian housing market is at peak cycle, and believes the pace and severity of the coming downturn will be “cushioned by the Chinese demand”.
Despite new taxes and Aussie bank lending restrictions on offshore investors, foreign buying surged last year and is expected to grow further this year and next, Credit Suisse said.
“The report should put to rest any concern about foreign buying in Australia. It shows robust and growing purchasing despite local taxes and lending restrictions and Chinese capital controls,” said Charles Pittar, CEO of Juwai.com, a Chinese-language international property portal.
However, Pittar cautioned on taking the report’s findings at face value. “The report may overstate the amount of Chinese buying by combining into the 2016 data transactions that actually took place in earlier years as the construction boom got under way, but only settled last year when the projects were completed and transferred to their new owners,” he said.
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