Chinese buyers set to keep underpinning Australian home prices: analysts

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Almost one in four new homes in NSW is being snapped up by a Chinese buyer, according to Credit Suisse analysis of NSW Revenue figures, obtained under a Freedom of Information request.

The figures also reveal the NSW government’s stamp duty surcharge on foreign buyers delivered $154 million into state coffers last financial year.

This is significantly higher than the $64 million the state expected to collect from the measure when it was announced in the May 2016 budget.

The surcharge has been doubled to 8 per cent from 1 July this year and is expected to raise $111 million this financial year.

A crowd of mainly Chinese buyers at a hot auction in Sydney.A crowd of mainly Chinese buyers at a hot auction in Sydney. Photo: Fiona Morris

Credit Suisse expects foreign buyers will continue to underpin Sydney property prices for years to come, despite the new surcharge and despite Chinese authorities’ attempts to stem an exodus of wealth from China’s burgeoning middle classes into the relative safe haven of Western property markets.

“We continue to expect a stronger for longer backdrop for Aussie housing,” Credit Suisse analysts Hasan Tevfik and Peter Liu wrote in a note to clients on Wednesday.

“In 2011, the stock of wealth in China was equivalent to 1.2 times the value of Australian housing. Now it’s 2 times. Local incomes are becoming less relevant in determining the outlook for house prices. Regional wealth creation is becoming more relevant.”

Foreign buyers are pouring an annualised $5.9 billion into residential property in NSW, $3.4 billion into Victoria and $700 million into Queensland, the figures obtained by Credit Suisse show.

This is a “tiny fraction” of the total value of real estate in those states of $5.6 trillion, or $6.7 trillion nationally.

“However, they are a large proportion of the value of new housing supply,” the analysts note.

“We calculate foreigners are buying the equivalent of 26 per cent of the value of new supply in NSW, 17 per cent in Victoria and 8 per cent in Queensland.”

Chinese buyers dominate, accounting for 87 per cent of the value of foreign purchases in NSW in the first six months of 2017. This includes purchasers from mainland China, Hong Kong, Taiwan and Macau.

The next biggest buyers are New Zealanders, accounting for 1.6 per cent of the value of foreign purchases, followed by Indonesia (1.5 per cent) and the United Kingdom (1.3 per cent).

While small in number, American buyers spend the most per transaction, stumping up an average of $1.7 million per Sydney property purchase.

All up, people from 60 nationalities bought property in Sydney over the past nine months, including from Haiti, Nepal and Sudan.

“It is clear that Australia’s biggest cities are now melting pots of international capital,” the analysts note.

The Victorian and Queensland governments have also moved to impose new surcharges on foreign buyers of real estate, following similar moves in global cities such as Singapore, Hong Kong and Vancouver.

Amid fears of price falls, the Credit Suisse analysts decided to look at price movements in those cities after the introduction of the foreign buyer surcharges, and found they were unlikely to lead to local property price falls.

“The introduction or increase of a tax on foreign buyers seems to slow demand to a point where property prices decelerate, but it does not cause housing values to contract.

“Based on experience of other cities around the world, we do not believe the recent increase in taxes by NSW will cause property prices to contract.”

However, the analysts warn that any future significant increase in taxes on foreign buyers could dampen demand, leading to a weaker housing market.

“Australian governments have now been blessed with a new non-voter to tax. We doubt they will resist the obvious temptation of shifting more of the fiscal burden on to her.

“Moderation should continue, but Chinese demand suggest we ought to remain sceptical of a collapse.”

By Jessica Irvine
SMH

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