Agencies are increasingly catering for the Asian market; but why now? And what impact will this have on local buyers?
Australia has always had a strong allure for foreign investors. Interest from overseas has come in waves, from the migration from Hong Kong before the British hand-back in 1997, through the Taiwanese, Indonesian, Malaysian and most recent Chinese wave of buyers.
The similarities in climate, time zones and proximity to China, coupled with Australia’s favourable exchange rate, interest rates and education system, make it unsurprising that the country is experiencing a boom in interest from buyers from this region. Australia’s reputation for coming through the GFC relatively unscathed has also worked in its favour.
“Currently the Federal Government is actively encouraging foreign investment and probably the best example of that is the Significant Investment Visa, which is available to people with substantial wealth who are able to put money into designated investments,” REINSW CEO Tim McKibbin told the Journal.
But just how is this sales surge from overseas shaping the market in NSW and what impact will it have in the future? The Journal investigates how agencies, large and small, are catering for this growing section of the market and what is prompting this influx of foreign investment.
International Chapter
REINSW launched the International Chapter in 2013 in recognition of members’ desire to undertake business on an international level.
“The focus of the Chapter, as the name would suggest, will be to facilitate international trade of real estate, to be a conduit between Australia and other markets,” Mr McKibbin said.
“It will be a forum of people who provide a conduit to investors, both domestic and foreign, to transact property in and out of Australia.”
Chinese-buyer focused teams
Towards the end of 2013, a flurry of news stories hit the trade press stating that some of the big agencies in Australia were opening offices and hiring agents to deal specifically with Chinese investors.
In September McGrath opened its China Desk, a dedicated team that will walk Chinese buyers through the property buying process.
“The China Desk is headed by Davey Hong, an experienced agent who speaks fluent Mandarin,” McGrath CEO John McGrath said. “Davey will assist non-English speaking clients on all aspects of buying and selling, including negotiating sales, escorting clients to opens and auctions, and matching properties to buyers according to their individual criteria.”
In his opinion, the Chinese market is set to grow and grow.
“I haven’t seen a trend like this in my 30 years of real estate, where a new demographic [buyers of Asian origin] has entered the Australian market with such impact,” Mr McGrath said. “Their interest is across commercial, development and residential markets.”
Behind the firewall
LJ Hooker has always had a close relationship with China. Founder Sir Leslie Joseph Hooker was himself half Chinese and the company set up its first office in Hong Kong in 1999, then another in Shanghai in 2004.
The company entered into an agreement with Chinese property portal Juwai.com in 2012. Juwai.com allows agenciesto advertise properties in Australia to Chinese nationals in their own language. The website is hosted behind the Great Firewall of China, which often blocks or dramatically slows down foreign websites.
In October last year LJ Hooker launched its Chinese Property Concierge service, provided as part of the company’s partnership with Juwai.com. The partnership has proved popular with LJ Hooker franchises with 30 per cent of calls to the LJ Hooker call centre being about how to maximise the benefits of Juwai.com.
“Companies can no longer afford to be just a national marketer of real estate, they have to market to a truly international audience,” LJ Hooker Head of International Bill Russell said.
“Buyers from China are the fastest growing segment of the market in Australia. Properties around the $550,000 mark are popular, but many of them are buying homes at $2 million and even up to $30 million,” he said.
Where does the interest lie?
Not all suburbs appeal to the Asian buyer, according to Mr McGrath. He cites a number of popular Chinese hubs in the Sydney area where there is a solid uptake of new apartments from $560,000 to $1 million. These include Chatswood, North Sydney, Hurstville, Randwick, Epping and Bondi Junction.
“Chinese investors have historically favoured buying one and two bedroom apartments in cities like Sydney, Melbourne and Brisbane where their children can attend top universities, and their investment properties can yield good returns,” he said.
“Traditionally iconic views of the Sydney Harbour Bridge and the Opera House for example were important for the premium end, however this is changing as buyers are becoming more educated and astute about local property and various localities.”
Living the high life
Crown Group owns luxury high-rise apartment blocks across NSW from Epping to North Sydney. Grand opening events for the latest development Skye by Crown in North Sydney were held simultaneously in Singapore, Hong Kong and North Sydney.
Group Director of Sales and Marketing Adam Sparkes has seen interest in their Sydney properties, in particular, grow over the past 18 months. He expects the investment in the light rail to the Eastern Suburbs and upgrade of the western edge of the CBD will further increase the city’s appeal in the decade ahead.
“Many of our purchasers are buying a property off the plan now for their young children’s future. They may rent it out in the short term until their children are ready to go to university and then use the property as their Sydney base when they reach adult age,” he said.
“High-density housing has been popular in Asia for many years and Australia is now catching up.”
Impact on local buyers
Starr Partners CEO Doug Driscoll believes the boom in interest from Asian investors has had a huge impact on the Australian residential property market, particularly in the off-the-plan market in Sydney. His sentiment mirrors that of media reports over the past few months.
“On the one hand, it can be argued that foreign investment is pumping millions of dollars into the Australian economy, yet on the other, it can be argued that overseas investors are pricing locals out of the market,” he told the Journal.
“If you are a seller then you would probably welcome overseas investors with open arms, yet if you are a buyer, you may view them with consternation.
“With very few signs of foreign investment abating, the Government could be faced with a very difficult predicament. If overseas investors continue to crowd-out local property buyers, then a change of policy could be on the cards.”
REINSW position
Mr McKibbin does not subscribe to the view that foreign investment is bad for the Australian market and emphasises that the Federal Government has been actively encouraging foreign investment in recent times.
“It is not for the real estate profession or the industry to make decisions about who should be participating in the property market,” Mr McKibbin said. “It is a decision for the Government.
“I do accept that increased demand will place pressure on existing housing stock. However, my view is that the affordable housing discussion and problem has been with us well before the increase in foreign interest and investment into our existing housing stock commenced.
“Planning delays and property taxation are bigger issues for housing supply than foreign investors.”
Commercial interest
Knight Frank Managing Director of Capital Markets James Parry told the Journal that interest from Asia in the commercial sector has been building over the past three years.
There’s a lot of appetite that’s not being satisfied and seems to be growing,” Mr Parry said. “Prices are getting sharper with yields firming. The bulk of the offshore buying interest is on the Sydney and Melbourne’s CBD (gateway cities) markets.”
He notes that residential developer interest is predominantly Chinese, but noted that Malaysia has also been strongly active in the Australian market.
In March 2013, Knight Frank formed a specialist Asian Markets Division to target High Net Worth Individuals from Asia, particularly China, with an aim of capitalising on the recent changes to the Significant Investment Visa and the predicted influx of Asian capital into the Sydney and wider Australian marketplace.
“I think the level of Asian demand in the Australian market is sustainable,” Mr Parry said.
“However, I think it will be interesting when the next big thing comes along. USA is already balancing out and New York and London are also experiencing yield compression driven from global investor interest, which is consistent with what we are experiencing in Australia.”
Foreign investment beyond Asia
While Chinese investment in Australia is a big trend at the moment, REINSW is looking further afield for member opportunities. REINSW has formed allegiances on the East and West coasts of the USA through the Miami and the Californian Associations of Realtors.
“We are strengthening our ability to respond to our members’ enquiries from their clients into investing offshore,” Mr McKibbin said to the Journal.
“As each day ticks by our world gets smaller and technology and people are no longer bound by investing in their own city. Thirty years ago you would have invested in your own suburb. Now we tend to invest a little more broadly than that and people are looking to invest overseas.”