Efforts to better regulate Chinese investment in Australian property could have a negative impact on housing supply by starving new residential developments of funds.
Amendments to the regulations governing significant investment visas could have a severe impact on residential property developments throughout Australia.
The federal government’s new regulations on significant investment visas (SIV) came into effect on July 1. The special visa category permits cash-flush foreign nationals to secure residency in Australia on the condition that they place $5 million into approved investments.
SIV funds are a major source of overseas capital, with Australia receiving as much as $3.755 in foreign investment via the scheme as of March 2015. It is estimated that over half of these funds enter managed funds, providing a major contribution to property development.
The Chinese are the biggest holders of SIV’s, comprising over 90 per cent of successful applicants, equal to over $3.3 billion in capital.
The amended regulations significantly alter the asset categories that are approved for inclusion in the $5 million investment amount, throwing a spanner in the works of relocation plans crafted by affluent foreigners – particularly those from China.
Under the new regulations bonds are no longer included as an acceptable investment type, while investment in residential property developments is severely restricted.
Whereas SIV funds could previously include investment in large-scale residential projects, under the new rules they are restricted to management investment schemes where the relevant residential property investment is equal to 10 per cent or less of net assets under management.
According to Hall & Wilcox partner Eugene Chen, an expert on significant investment visa funds, as a result of the amendments many of the funds prepared in China for residential development investments in Australia may no longer compliant.
The changes could leave new high-rise apartment projects throughout Australia hard hit, given the significance of SIV funding from China for future development.
Critics further point out that the amended regulations require that part of the $5 million in capital be invested in financial products such as small cap equities funds or venture capital undertakings, where they could have a potentially destabilising impact on the share market.