Capital Controls Fail to Stymie Chinese Acquisition of Australian Housing

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Chinese investors continue to account for the vast preponderance of foreign acquisitions of new homes in the most populous part of Australia, despite the tightening of capital controls by Beijing.

Beijing stepped up capital controls towards the end of last year due to concerns over burgeoning outflows of funds, triggering an 82% year-on-year plunge in outbound real estate investment for the first half of 2017.

While the central government has repeatedly warned against “irrational” foreign investment, particularly in the real estate sector, its capital curbs appear to have done little to contain the acquisition of new homes in Australia by Chinese investors.

A Credit Suisse Group AG analysis of Australia’s tax office data indicates that China accounts for about 90% of foreign demand for new housing supply in the country’s most populous state of New South Wales.

According to the study foreign buyers are also grabbing roughly a quarter of new housing that’s coming online in the state.

“We see no evidence of a slowdown in foreign demand because of the stronger capital controls introduced by Chinese authorities,” said Credit Suisse analysts Hasan Tevfik and Peter Liu in the report.

While Australia’s state governments are making a token attempt to deter foreign home investors by raising taxes, Credit Suisse notes that levies remain higher in other popular international cities, while Australian property is still a comparative bargain compared to real estate in the major Chinese urban centres.

The rising wealth of Chinese citizens is also a central driver of outbound investment in foreign real estate, changing aggregate demand in other countries.

“Local incomes are becoming less relevant in determining the outlook for house prices and regional wealth is becoming more relevant,” said the report.

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