Given the recent admission by the Australian Central Bank that property prices “have gone crazy,” it appears new Chinese ‘regulations’ may just kill Australia’s golden goose of ‘weath creation’ as Aussie’s largest trade partner sees its economy collapse. While the Aussies themselves proclaimed a “war on cash,” it appears, as AFR reports, that Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls. With Chinese banks now limiting any overseas transfer to USD50,000 – in an effort to control capital outflows – and with China dominating the Aussie housing market, one agent exclaimed, “it has affected 70 to 80 per cent of current transactions and some have already been suspended.”
To date Chinese investment has been overwhelmingly focussed on the most familiar capital city property markets of Melbourne and Sydney, with around 80 per cent of foreign investment hitting Victoria and New South Wales. As PeteWargent shows, China dominated the foreign buyer of Aussie homes…
As Bloomberg notes, Chinese buyers were approved to buy A$12.4 billion ($9.9 billion) of Australian real estate in 2013-14, the Foreign Investment Review Board said in its annual report, without differentiating between commercial and residential property. China’s total approved investment in Australia was A$27.7 billion over the period, compared with the U.S.’s A$17.5 billion.
And Q1 2015 showed no signs of a slowdown in that flood of capital to Australia…
But now, as AFR reports, China’s capital controls will kill that flow of money into Aussie property…
Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls.
One Chinese agent said the latest efforts by the central government to avoid large capital outflows were having a “significant impact” on his business.
“It has affected 70 to 80 per cent of current transactions and some have already been suspended,”said the agent who asked not to be named.
The tighter foreign exchange rules are also set to impact the federal government’s relaunched Significant Investor Visa (SIV), which provides fast-tracked residency for those investing at least $5 million into Australia.
“I think it will be big, big trouble for the SIV program because the amount of money is just too large,”said one Shanghai-based adviser, who sells Australian property and advises wealthy clients on their migration plans.
Only seven SIV applications have been submitted since the new rules were introduced on July 1, which require investors to put their money into riskier assets such as venture capital and emerging companies.
China has previously tolerated significant capital outflows via so called “grey channels”, but has tightened up enforcement in recent weeks as the economy slows and fears over capital flight put downward pressure on the currency.
The crackdown from Beijing has seen Chinese banks setting up watch lists for unusual transactions, according to one bank manager, who asked not to be named as he was not authorised to speak about the policy.
He said the operation was aimed at cracking down on a practice whereby family and friends of those wanting to purchase a property overseas all transfer US$50,000 into an overseas account. That’s the limit each Chinese individual is allowed to move out of the country each year.
The purchaser then pays back his friends and family in China and uses the money from the overseas account to put down a deposit on the property.
However, banks are now tracking the source of funds for overseas bank accounts that have received more than US$200,000 within 90 days, according to the bank manager, who works in Shanghai for one of the major state-owned banks.
“We have always had this policy but now it has been restated and is being enforced more strictly,” he said.
“In the past we could find a way around these rules but now all those ways have been blocked.”
“I’m sure this would be having an impact on overseas property purchases,” he said.
The tighter rules in China come as Sydney recorded its lowest auction clearance rate for the year this past weekend, while Melbourne has now recorded two weekends below the same time last year, according to Corelogic RP Data.
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The problem is that Australia, after decades of effort to diversify, is looking ever more like a petrodollar economy of the Middle East, but without the vast horde of foreign currency reserves to fall back on when commodity prices fall.
Instead, Australians must borrow to maintain the standards of living that the country has become accustomed to, which even some Greeks will admit is unsustainable.