CHINESE BUY 1 IN 4 NEW PROPERTIES IN NSW: CREDIT SUISSE
CHINA represents 87 per cent of foreign property buyers in NSW: January to June 2017
Buyers inspecting plans at the launch of an apartment block in Epping last year. Fiona Morris
by Nick Lenaghan
Foreign buyers, almost all of them Chinese, are buying the equivalent of 25 per cent of new housing supply in NSW, undeterred by local taxes or investment limits imposed in China.
Credit Suisse’s Hasan Tevfik and Peter Liu have forecast a “stronger-for-longer” scenario for the housing sector after analysing foreign buyer receipts collected in NSW, Victoria and Brisbane.
The trend is strong in Victoria as well, with foreign buyers accounting for the equivalent of 17 per cent of new housing. In Queensland, it is 8 per cent.
“Almost 90 per cent of foreign demand is from China and there is little evidence that new capital controls by the Chinese authorities, announced in December 2016, have slowed demand for Aussie housing,” the analysts wrote in a report released overnight.
“We think the tailwind of Chinese wealth creation will mean more, not less, foreign buying of Aussie housing.
In Sydney, house prices fell by 0.1 per cent over September, the first fall since late 2015. New dwelling approvals have also been sluggish.
In their report ‘Build it and they will come’, the Credit Suisse strategists expect the moderation in housing activity and house price inflation to continue.
“But Chinese demand suggests we ought to remain skeptical of a collapse,” they wrote.
“Residential exposed companies should benefit including the developers, building material companies and banks.”
Following an initial report in March this year, and using Freedom of Information requests the Credit Suisse report collates tax receipts collected by the state revenue offices in the three states over the 2016-17 financial year.
It found foreign buyers are pouring an annualised $5.9 billion into residential property in NSW, $3.4 billion in Victoria and $700 million in Queensland.
That investment is just a tiny fraction of the national housing market, worth $6.7 trillion, or $5.6 trillion in the three east coast states. However, the report notes, it represents a large proportion of the value of new housing supply.
While the Chinese dominate overall foreign demand, it is Americans who spend the most on each property, with an average purchase price in Sydney of $1.7 million, according to Credit Suisse. Indians spend the least, averaging less than $400,000.
From July 1 this year, NSW doubled the stamp duty on foreign buyers to 8 per cent and increased the land tax surcharge from 0.75 per cent to 2 per cent.
Along with stamp duty and a federal fee, a foreign buyer is saddled with a 12 per cent tax burden before they can take possession of their property.”Will the most recent increase in tax be enough for her to reconsider and cause house prices in Sydney to decline? International experience so far suggests not,” the Credit Suisse analysts wrote.
Victoria and Queensland also impose taxes on foreign buyers of residential property of 7 per cent and 3 per cent, respectively.
The prospect of higher surcharges on foreign buyers, along with the further depreciation of the renminbi – thereby making Australian housing less cheap compared to the cost of Chinese apartments – represent risks to Chinese demand for real estate here.
Offsetting these risks, in the Credit Suisse view, is the “tailwind of Chinese wealth creation”. Chinese millionaires account for much of the real estate buying in Australia.
Six years ago, their wealth would have covered 1.2 times the Australian housing market. Now it covers two times the value of local housing.
“As our property market becomes more global perhaps we should be concentrating less on Australian incomes as a measure of buying power and more on wealth creation in the Asian region,” the analysts wrote.
All this is good news for major developers such as Lendlease, Stockland and Mirvac, the report noted.
The big four banks also have exposure to the residential market, along with building materials companies such as Boral,BlueScope Steel, Dulux, CSR and Adelaide Brighton.
Credit Suisse have added Fletcher Building to their Long portfolio and also cite property websites REA Group and Fairfax Media, the publisher of The Australian Financial Review.
“The foreign buyer has never before been as an important driver of the Australian housing market as she is now,” the analysts wrote.
“We forecast these flows to continue at a strong pace and will serve to cushion the downside in activity and prices.”