Zhang Biao, a 32-year-old Chinese entrepreneur, has already considered which university he will be at the age of eight. He said: “We think overseas apartments are a good investment and our son can attend Australia or the UK’s sixth university.”
In October, Mr. Zhang and his wife made an offer to a Melbourne apartment worth $ 600,000 ($ 460,000) just to be told they are no longer eligible for the 60% mortgage loan they applied for. Instead, they decided to pay £ 120,000 for an apartment in Liverpool, England.
Mr. Zhang, one of the regulators for the growing number of Chinese real estate investors who have shifted their attention from Australia to other markets, is eager to moderate the rise because of fears of a bubble that have put pressure on banks to curb foreign loans.
The Reserve Bank of Australia warned this month that residential construction activity has risen 50% above the long-term average in the past two years and that there is “the risk that new condos will not settle”.
Analysts warned that a sharp correction in the real estate market could plunge Australia into the first recession in a quarter-century. GDP contracted by 0.6% in the third quarter, although most economists expect economic growth to recover in the fourth quarter.
In a recent report, broker CLSA said: “We think the (real estate market) readjustment will start with the solution of low quality apartments.” Our worst case scenario will result in a fall in house prices, which eventually leads to a recession. “
Despite a sharp decline in mining investment, the boom in foreign investment helped to keep Australia’s economy growing. In 2014-15, Chinese investors were approved to invest $ 24.4 billion in assets, more than tripling the U.S. purchases by the second largest foreign investor.
In the past four and a half years, the inflow of foreign capital helped prices in both Sydney and Melbourne cities rise by 67% and 47% respectively. Foreign buyers account for one-fifth of apartment sales.
Now overseas demand began to weaken. In the past two years, the share of foreign buyers in Australian property sales has dropped from 16.8% to 10.9%.
This is especially true in the apartment market. As of the end of December last year, building permits dropped by one-fifth. Unit prices in Melbourne and Brisbane have started to rise modestly, up only 1.7% and 2.3% respectively last year.
Esther Yong, co-founder of ACproperty, a Chinese real estate portal, said: “Chinese buyers are becoming increasingly nervous about Australia because of recent regulatory, tax and bank loan irregularities.” Many Chinese bought an apartment three years ago , Financing is hard to find now because Australian banks have stopped lending to foreign buyers. “
The four major banks in Australia, Commonwealth Bank of Australia, Commonwealth Bank of Australia, ANZ Bank and Westpac have all stopped lending to non-resident borrowers without domestic income. ANZ CEO Shayne Elliott told the Financial Times: “We’ve basically closed our mortgage loans to nonresident buyers.
He said Melbourne’s apartment market has “a little bit of focus” on the market, due to the expansion of smaller condominiums in the city center, some less than 50 square meters and no bedroom windows.
The exit of bank financing has forced some real estate developers to step up supplier financing, which could expose buyers if prices fall.