Written by Stefan Kostarelis
Credit Suisse analysts believe that the Australian housing market has peaked but are hopeful that Chinese buyers will moderate the fallout from any sudden drop in prices.
The assertion comes from a paper written in late March by Credit Suisse analysts Hasan Tevfik and Peter Liu according to The Sydney Morning Herald.
Tevfik and Liu filed a freedom of information (FOI) request and received figures from state governments, which now collect taxes from foreign buyers after a property is settled.
As noted by Tevfik and Liu, the data “”implies foreigners are acquiring 25 percent of newly completed supply in NSW and 16 per cent in Melbourne, or 21 percent if we combine the two states”.
Talk of a housing market bubble revolves around Sydney and Melbourne for good reason. Since 2009, Sydney house prices have more than doubled, and Melbourne isn’t far behind with gains of up to 90 percent.
According to the data acquired by Tevfik and Liu, the total value of new houses in NSW and Victoria was $39 billion over the 12 months analysed.
The paper defines Chinese buyers as those coming from Mainland China, Hong Kong, Macau and Taiwan and found that they accounted for 80% of the properties sold to foreign buyers.
562,000 residents in Australia are Chinese migrants, and as the gif above shows, 38,186 of metropolitan Adelaide residents were born in South East Asia.
Even though we think of house prices in Sydney and Melbourne as astronomically high, from a Chinese perspective property here offers great value.
“The median price for a two-bedroom apartment in Shanghai is around $900k which is 25 percent more than the median apartment price in Sydney”, Tevfik and Liu wrote. “Also, the gross rental yield in Shanghai is a paltry 1.5 percent and is less than half the gross rental yield for the equivalent property in Sydney. Yes, our property is expensive when we compare it to our own history, but it is cheap when compared to Chinese property.”
However, since the data was captured, legislative changes in both China and Australia have taken place.
In January, the Chinese government put in place more stringent capital controls in an attempt to limit overseas investment. Since January 1st, Bank of Shanghai and China Merchants Bank customers have been required to fill out an online form when applying to purchase foreign currencies.
Reuters reported that the form restricted foreign exchange from being used to buy overseas property, security, life insurance or other investment-style insurance products.
Starting in July of this year, banks and other financial institutions in China will have to report all domestic and overseas cash transactions greater than 50,000 yuan ($AUD 9,861), down from 200,000 yuan ($AUD $39,428).
Meanwhile, in Australia, Tuesday’s reading of the Budget showed that our government is cracking down on foreign investment. According to the Budget, new developments will be subject to a 50 percent cap on foreign investment approvals and capital gains tax rules will be tightened for foreign investors.
Starting from May 9th, foreign buyers will also be hit by a so-called “ghost house tax” on properties that are left vacant for at least six months of the year.
It is unclear how much these changes will affect the Chinese appetite for Australian property – there are surely “creative” ways around them – but they may lead to a decrease in demand.
Regardless, Credit Suisse’s analysts remained optimistic. “Investors could be too cautious”, Tefvik and Liu wrote. “The data revealed by the NSW and Victoria state governments gives us more confidence that Australian housing will enjoy strong demand from abroad for some time to come.”