By Esther Yong, co-founder and director of ACproperty.com.au.
These days it is not uncommon to open a newspaper or blog entry, to read news about the ever-rising inflow of Chinese buyers of Australian property. However, to truly understand this trend, it is important to see things from the other perspective. We like to call ourselves the ‘lucky country’, but don’t realise that many of the privileges we take for granted here, are not available to Chinese nationals buying property in China.
Here are five differences between buying property in China and Australia:
1. The right to buy where they want
In China, there are location restrictions on where Chinese residents can buy properties. For some residents they will never be able to buy a property in big cities like Shanghai or Beijing. For example, if an investor is a Suzhou resident, he will not be allowed to buy property in Shanghai or Beijing as he is not a registered resident of these cities. So, for a Suzhou resident, the ability to invest in big cities like Melbourne and Sydney is an attractive investment opportunity.
2. A fairer payment term in Australia
Buyers in China follow a strict payment term of settling 100% of the property price within 1 month of signing the contract for all property purchases. This includes off-the-plan property that may only be functional to the buyer in 12 months time. In Australia, the settlement occurs after the completion of the property which is viewed as a fairer payment term for buyers.
3. Australia properties have a higher rental yield that provides greater cash flow
Currently, both Australian and Chinese banks could offer loans to buyers up to 70% of the property price with interest rate hovering at around 5%. However, Australian properties can yield a return of 4-5%, while Chinese properties yield only 1-2%. As a result, Chinese property owners would need to sustain a higher out of pocket expense each month to cover their mortgage repayments. This may put them in a poorer cash flow status, as compared to their Australian counterparts. As Chinese property returns are predominantly derived from capital gain, investors will need to be cashed up to hold multiple investment properties in China.
4. The right to own a property title permanently
In contrast to owning permanent property title in Australia, residential property owners in China only own the right to use the land for 70 years. So far, there are no clear indications of what will happen after the 70 years, which is unsettling for wealthy families who are looking to pass on their wealth to their descendants. As such, the ability to own permanent property title overseas is a major appeal for these Chinese buyers.
5. Diversifying their portfolio investments
Chinese investors believe all Chinese properties are link to China’s economic performance. To optimise their portfolio, they consider investing in overseas property. In fact, overseas property investment is one of the hottest topics among the new generation of high net worth individuals in China. They believe that investing in Australian properties would soften any impact on their overall wealth in the event of China’s economy downturn.
Esther Yong is the co-founder and director of ACproperty.com.au, Australia’s largest Chinese language property website. She is Australia’s key opinion leader and expert in real estate marketing to Chinese buyers and was recently named one of the most powerful women in property by Domain.