A new report from Knight Frank claims that in 2017, one-third of Australian residential development sites were sold to Chinese investors and developers.
In total, site sales to Chinese investors and developers equated to $2.02 billion, according to the report ‘Chinese Developers in Australia – Market Insight 2018’.
The report has been released to coincide with Chinese New Year, which this year is on Friday 16 February, 2018.
Knight Frank’s head of residential research, Australia, Michelle Ciesielski said, “Chinese developers have continued to dominate foreign investment in residential development sites across Australia. Many are now well-established in the local market.”
The share of sales to Chinese buyers has tripled since 2013, but decreased from the 38 per cent recorded in 2016, she said.
Source: Knight Frank Research.
Tighter regulation in both Australia and China has not dampened Chinese interest in Australian real estate
“Sustained developer interest in the Australian market has come in spite of government efforts in both Australia and China to tighten credit conditions as they relate to residential investment and development,” said Ciesielski.
“In Australia, the Australian Prudential Regulatory Authority has encouraged local financial institutions to impose stricter controls, while in China the government has attempted to moderate capital outflow with China’s Central Bank imposing new rules for companies which make yuan-denominated loans to overseas entities.
“However, in mid-2017, this was relaxed somewhat – resulting in a boost to market confidence.” said Ciesielski.
Melbourne received the highest proportion of Chinese buyers of development sites
The level of Chinese investment in residential development sites varied from state to state:
- in Victoria, 38.7 per cent of residential site sales were to Chinese buyers
- in New South Wales, 35.6 per cent of residential site sales were to Chinese buyers, and
- in Queensland, Chinese buyers comprised 7.4 per cent of total residential site sale volumes.
Ciesielski said Melbourne was the most popular city for Chinese investors because it has sustained population growth, strong residential capital gains, and relatively low total vacancy rates.
“Many developers consider that Melbourne offers better relative value when compared to Sydney,” she said.
Chinese developers are shifting their focus to lower density developments
The report shows that Chinese developers and investors are increasingly focused on lower density developments in Australia, with 29 per cent of all sites purchased suited to low density, up from two per cent in 2013.
Source: Knight Frank Research.Knight Frank’s head of Asian markets, Australia, Dominic Ong said, “As Chinese developers gain experience in higher-density projects across the major cities, there has been diversification in many of their portfolios to include medium and lower-density sites.
“These lower-density projects have also become more popular with local developers – especially in NSW, with the draft Medium Density Design Guide being released, identifying the ‘missing middle’ to encourage more low-rise, medium-density housing to be built.
“This type of project also tends to have less hurdles with the imposed tighter lending restrictions, and overall, lowers the delivery risk to the developer,” said Ong.
Chinese developers are buying larger plots
Ciesielski said that because Chinese buyers are shifting to lower-density developments, the size of the sites they are buying is larger.
“In 2017, the average site purchased was 21,785 square metres, increasing three-fold since 2013,” she said.
Source: Knight Frank Research.“It’s expected lengthier due diligence will be carried out for those now established in the local market, and for new developers coming into Australia, transactions will be reliant on the ability to transfer their funds,” concluded Ciesielski.