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Report: Chinese Buyers may be Limited by More Than “70 Year Leases”

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Written by Simone Corletto

2016-08-18-12-54-01

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A recent report into Opportunities for Australian Financial Institutions in the Chinese Financial Sector has highlighted a significant driver for Chinese buyers to purchase Australian property assets may be the lack of financial services available to the middle class.

The report written by Clarence Consulting’s Evan Clarence & EDIS Pty Ltd’s Peter Truong is focused primarily on the Financial Sector of China, however the report’s authors noted that there may be some insights into some of the other underlying reasons why Chinese buyers are coming to Australia.

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“…servicing middle class investors is not the priority of many banks in China.  In China you also can’t technically own land or property, you only own the government lease for it and these eventually expire.  Hence they seek to invest abroad in places like Australian real-estate.” Says Evan Clarence.

The report highlights how only 15% of the total Chinese middle class, an estimated 16.3 million people of the 109 million middle class, participate in direct equities investments (shares / stocks).

The report estimates that with a better education on investments and greater product diversity, participation in investment rates could increase to 34% (Medium between Australia, United States, United Kingdom), with the potential for the investment market size to reach $1,482trillion (which the reports highlights are “conservative estimates”).

This lack of products for the Chinese to invest in, as well as the well-known 70 year lease restrictions on property ownership in China may be forcing many potential investors to look overseas for opportunities, including the Australian property market.

Education is another crucial factor. Emma Sibila of Wowu88 notes that “[Australian] universities are very popular with Chinese students, who now account for 1/3rd of all foreign students studying in Australia”.

While many students may opt for student accommodation, there’s an increasing number of Chinese families buying property for their children to live in during their studies. Of those students, a number choose to remain in Australia after graduation, and may seek to bring their families over.

Currently, foreign investors are barred from buying already established properties, Leaving only land and new constructions available. New taxes have also been introduced for foreign investors, and a number of banks are no longer offering loans to overseas investors.

The ATO has also introduced new legislation which will require foreign residence to pay a 10% withholding on tax properties worth more than $2 million (the exception being a purchaser can rely on a clearance from the vendor in which case the 10% withholding tax is not a requirement.). Along with proof of residency and citizenship requirements for purchasing in Sydney, and higher stamp duty rates to foreign buyers in Victoria, the regulations on foreign investors are ever-increasing. But despite this, Australia is still considered a sound investment to Chinese buyers, due to capital growth and strong rent yields.

The South Australia market in particular has a lot to offer investors, especially with the introduction of 10-year visitor visas, which are reported to start by the end of 2016. Emma says “Chinese buyers are interested in the SA property market because of the great value compared to interstate counterparts, and the fact many of Adelaide’s properties can be found on good land size in close proximity to the city. Investment property is in high demand and we are seeing a spike in enquiries for Agribusinesses.”

Overall it seems the foreign investment market is growing. Australia has a lot to offer, and there’s a lot of money to be made in that.


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