Chinese investors struggle to hold on to property abroad as soaring rates, weak domestic economy make mortgages unaffordable

These dynamics seem to be playing out for a number of Chinese home owners in Australia, where the central bank has hiked interest rates on 13 occasions since 2022.


Chinese investors offloading overseas properties

Chinese investors offloading overseas properties

In the popular Sydney suburb of Bondi, known for its famous beach, one Beijing resident had bought a two-bedroom apartment for A$1.3 million (US$848,000) in 2015, according to Peter Li, general manager of Plus Agency, a property company with more than A$200 million in annual sales. They were recently forced to sell – at a significant loss when the costs of renovation work are factored in.
“So they bought the property and took out a mortgage, but the property was off-plan and they [later] discovered some defects, and then Covid happened,” Li said. “They wanted to rent out the property but they needed to fix it first. They started to do that, but in 2023 they realised they had ran out of cash to fund the project.”

After their Australian bank account ran dry early last year, the bank set them a deadline to sell the property by this month.

“The purchase price plus the cost [of repairs] meant that they needed A$1.7 million to A$1.8 million [to break even],” Li said.

Just last week, they agreed to let go of the property for A$1.4 million.

Li said there were several factors in addition to high interest rates that led to this “extreme case”.
Since 2017, Australian banks have been barred from lending to foreign borrowers so the buyer in this case would have had to source money from China to meet their payments.

But this would have been a no-go because Beijing has its own strict capital controls to prevent citizens from moving cash freely out of the country. Since 2016, the government has tightened its efforts to stem cross-border currency flows, imposing a US$50,000 annual cap on Chinese citizens wishing to buy foreign currency.

Another Chinese investor who lives close to Shanghai took out a mortgage to buy a A$600,000 home in Chiswick, another suburb of Sydney, in 2009.

The unit had a tenant, but the investor anticipated that she would not be able to increase the rent by a sufficient amount to keep pace with interest rates, said Li.

At the end of last year she opted to sell the property for A$940,000.

“She said she would rather prepare early than start getting notices from the bank,” Li said.

The sluggish growth of the world’s second-largest economy – last year saw the smallest expansion in three decades outside the coronavirus pandemic, at 5.2 per cent – is adding to the burden of overseas property owners, Li said.

Traditionally the property segment in China creates wealth for its citizens, but the current downturn is having the opposite effect.

The property crisis at home has shaken confidence, denting spending on homes as developers struggle to repay debts and deliver residential projects on time.

In December, prices of new homes in 70 medium and large cities fell 0.4 per cent month on month after a 0.3 per cent drop in November, according to official data. It was the steepest monthly decline in new-home prices since February 2015.

Real estate investment in terms of value fell by 9.6 per cent to 11.09 trillion yuan (US$1.5 trillion) last year, about the same as the decline in 2022.

Some overseas markets have seen a dramatic fall in the number of Chinese homebuyers as spiralling interest rates and the economic woes at home have made leveraged property purchases less affordable.

In Singapore, for example, just 160 Chinese investors bought property last year, the lowest since 2008, according to PropNex Realty. The city state, which manages its monetary policy via an exchange rate band, began its policy tightening streak in October 2021.

The trend has been exacerbated by a recent hike in the stamp duty paid by foreign buyers in Singapore, according to Alan Cheong, executive director, research and consultancy at Savills.

“Chinese activity has been toned down to almost an inaudible level,” Cheong said.

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