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Saturday, May 09 2015

Chinese buyers could pump as much as $60 billion into Australian housing over the next six years, with much of that investment going into new housing, according to a Credit Suisse report.

Strategist Hasan Tevfik and his team produced a landmark analysis last year revealing the scale of Chinese housing investment for the first time.

Now they have revised those original forecasts dramatically upwards in the wake of the latest foreign investment figures.

Over the next six years to 2020, Chinese spending on housing will more than double what it has been over the previous six years.

China has become Australia's biggest source of approved foreign investment for the first time after a $12.4 billion splurge on real estate in the last financial year.

Of that total around two-thirds, $8.7 billion, was spent by investors based in China or by new immigrants from China on residential real estate, according to the Credit Suisse analysis.

That represents an increase of 60 per cent on Chinese spending in the year. It is also equivalent to 15 per cent of the national housing supply.

"Purchases are concentrated in Sydney and Melbourne where Chinese demand is the equivalent of 23 per cent and 20 per cent of new supply, respectively," Mr Tevfik said in a client note this week.

"While new foreign investment proposals may make Australian real estate less attractive for Chinese buyers, we believe the potential erosion of demand will be marginal.

"After all, Australia is on the doorstep of the greatest wealth creation in three centuries. Despite moderating growth, we expect more Chinese wealth to be invested abroad."

Australian housing-related stocks – developers, building material companies and property websites – will be beneficiaries of the boom.

But the surge of the Chinese money is taking its toll on prices, especially in Sydney, where prices lifted 13 per cent last year, and in Melbourne, where prices were up 5 per cent.

"If Chinese buyers are on the verge of snapping-up the equivalent of a quarter of new supply, we can see why house prices in both cities have outpaced income growth," Mr Tevfik said.

"Without a structural increase in supply to match the structural increase in Chinese demand, there will unfortunately be strong property price inflation for many years to come."

Housing supply needs to increase by 4 per cent annually to accommodate the strength of Chinese demand.

Approvals of new houses and apartments hit a record level in March, pushed higher by a jump in Queensland apartment approvals.In the year to March, more than 210,000 houses and apartments had been approved nationally. 

The Credit Suisse analysis said new application fees – of $5000 or more – on foreign property buyers, introduced by the federal government would do little to stem demand. However new fees in Victoria may have a greater impact on foreign demand. 

In this week's state budget, Victoria announced surprise new taxes on foreign buyers of residential real estate, including a 3 per cent stamp duty surcharge.

"We imagine the potential increase in fees to buy a Melbourne property would drive the marginal buyer to other Australian cities like Sydney where charges are lower," Mr Tevfik said in the client note.

"A tax in Victoria could make Sydney house prices even more expensive."

Posted by: Greg Carroll AT 01:29 pm   |  Permalink   |  Email