Investorist Asks: What Will Chinese Investors Do Next?

By Jon Ellis, Investorist

When it comes to analysing what’s going on with Chinese investors and our market, there’s a plethora of negative headlines and reports out there. Some large developers seeking to attract Chinese money have taken note, abandoning or putting on hold some of their development plans. Or re-designing their product and pricing and shifting their marketing focus towards attracting owner-occupiers.

As the world’s leading marketplace for buying and selling off the plan properties and with a large team on the ground in China, we see and closely track what’s happening in China on a daily basis. Purely a B2B platform, we don’t deal with end buyers, but connect developers with the agents who have hundreds of thousands of Chinese buyers as their clients.

Why are agents important?

When it comes to buying international property, the vast majority of Chinese investors rely on an agent to do this for them. Buying property in a foreign country is extremely complex and requires expert knowledge of local laws, contracts, loan requirements, visas, currencies, local taxes and foreign investment rules, language translations and more.

Very few Chinese have the expertise, local country knowledge or contacts to undertake this, hence they rely heavily on agents and advisors specialising in the type of investment property or migration path they seek.

What can agents tell us? 

Speaking to agents in China’s largest cities, our current reading of Chinese investors is that demand remains reasonably steady, although the type of investment product they are seeking is expanding.

For developers, it is becoming more challenging to target the ‘right’ agents who will be most motivated to sell their product and have the right client database, plus understanding competitive commissions in the market.

Rather than relying on email and mobile-based communication, face-to- face meetings between agents and developers are crucial for developing the ongoing relationships needed to sell in China’s crowded marketplace.

What are Chinese investors buying?

What type of investments are in demand today? It used to be mostly one and two bedroom off-the- plan apartments in Melbourne and Sydney priced under $500,000. Now Brisbane and to a lesser extent Adelaide, Gold Coast, Perth and regional areas such as Geelong and Newcastle are also being marketed in China at a variety of price points.

On the platform we have seen a significant increase this year in investors buying house and land packages. These can be located up to 40 km from Melbourne and Sydney CBD’s, where as demand used to be strictly in a 20km radius.

Townhouses are also increasingly sought after, as Chinese buyers appreciate the larger living areas and inclusion of the private land component usually accompanying townhouses.

Is Australia still in demand? 

A couple of weeks ago we held our final China Connection events for 2017 in Beijing and Shanghai, which attracted agents from more than 125 real estate firms. On the seller front, generally developers are still bullish about China: a record 10 international developers launched projects at China Connection including four from Australia, two from Melbourne and two from Brisbane.

Competition for investment dollars from US gateway cities (driven by EB5 visas and education) and closer markets like Japan (driven by the 2020 Tokyo Olympics) and Thailand (driven by Chinese retiree demand) is increasing.

Feedback from our Australian developers at China Connection was that the Chinese agents were very interested in their new developments and looking for quality projects in blue chip locations to sell, especially those near good schools or universities.

Have local bank lending restrictions impacted demand?

Definitely is the short answer, and overall we’ve seen demand from China fall by about 30 - 40% largely due to the restrictions since the start of the year. However, this has created a big opportunity for a number of non-bank lenders and foreign loan funds backed by High Net Worth Individuals to come into this space, offering competitive loans to Chinese investors and effectively filling the local bank funding gap.

Keep in mind also that many Chinese investors are cash buyers, according to our China 2017 International Property Outlook report

, some 82% of Chinese buyers have enough cash reserves to settle their purchases without any need for finance at all.

What is driving the investment outlook for Australia?

Medium term, we believe current loan restrictions continue to impact on Chinese investors.

However motivated buyers are very resourceful in finding ways to secure property, and will often pool their funds with family members to buy. The sheer size of the Chinese market is enormous and growing. China has an overall population of 1.4 billion people, 74 million residents in its four biggest cities of Shanghai, Beijing, Tianjin and Guangzhou alone, who are becoming increasingly wealthy with growing disposable income.

Indeed China will be considered a middle class society by 2030. Despite the rapidly escalating prices of Sydney and Melbourne, many Chinese buyers remain keen to secure their wealth for future generations in assets outside of China, and Australia still ticks this political and economic security box, along with its well known, renowned clean air and lifestyle benefits.

About Jon Ellis

Jon is the CEO and Founder of Investorist, and has developed and executed marketing strategies for over 80 property developments, including some of the nation’s most significant projects and new suburb creations.