The removal of restrictions on outbound capital flows by Beijing is set to have a massive impact on Chinese investment in Australian real estate.
The CEO of China’s leading international property portal says that Beijing’s loosening of restrictions on private capital outflows could cause investment in the Australian real estate market to surge to even greater heights.
As part of ongoing efforts to further deregulate the economy Beijing’s qualified domestic individual investor (QDII2) scheme is expected to dramatically increase the amount Chinese nationals will be permitted to invest overseas.
Analysts believe that QDII2 will allow individuals above a certain wealth threshold (estimated to be around USD$160,000) to place as much as half the value of their total assets in overseas investments such as a real estate.
This marks a radical increase compared to the current cap of USD$50,000 per annum on investments abroad by individuals.
According to Andrew Taylor, co-CEO of online realtor Juwai.com, the policy should result in a sharp expansion of cash flows into the Australian property sector, given the country’s perennial appeal to cash-flush Chinese investors.
“We estimate that the pilot program, rolled out nationally, would enable almost AUD$98 billion of new Chinese money to flow into Australia’s real estate market – that’s a conservative estimate,” said Taylor. "“If I had to sum up the impact in just a few words, I would say jobs, new construction and economic growth."
The new scheme could be just the beginning of much greater loosening of capital outflows, given the Chinese government’s longstanding track record of expanding pilot policies that prove successful during trial runs.
“The Chinese government will launch this as a test, a trial to make sure that when they roll it out nationwide they have the right parameters and rules in place,” said Taylor.
“From the beginning of China’s reforms a few decades ago this is how they have proceeded. They have tried out things in specific sectors or locations. If they don’t work, they move on. But what does work is expanded. It’s a very pragmatic and intelligent approach.”
Further liberalisation measures are also likely given Beijing's ambitions to increase China's role within international trade networks.
"China's ultimate goal is to have a currency that can essentially be freely traded back and forth across borders. In the end, it thinks it will attract more investment than it sends overseas, and therefore it's economy will grow still more."
Taylor notes that despite its modest population size Australia has recently emerged as one of the world’s preeminent destinations for Chinese investment in the property sector.
“Over the past couple of years Juwai data shows Australia getting about 23 per cent of China’s property specific overseas investment. That’s pretty good on a global level and is only beaten by the US, which gets 33 per cent.”
In addition to Australia’s high living standards and relatively close geographic proximity, Chinese investors are also drawn by the country’s friendlier regulatory environment.
“Some of the factors that are very attractive to Chinese buyers are high-quality educational institutions, smooth visa processes, direct flights to multiple Chinese cities and fair and uncomplicated real estate investment rules," said Taylor.
"The big unknown is whether Australia will maintain its position as the number-two destination for Chinese real estate buyers. Already it faces stiff competition from the US, Canada, the United Kingdom and other countries that are eagerly courting Chinese money and place no restrictions on how it is invested."
Taylor said that the higher end of the Australian property market is set to be the chief recipient of any expansion in Chinese spending - in particular “super-premium property” and new developments.