Is China back in the game?

The Chinese buy has been sidelined for the past year or so. It had a huge impact on the market – particularly in higher-end suburbs. Chinese buyers went hard and many paid with cash.

But then the Chinese buy got sidelined. In part it was about the Australian government cracking down and making sure all foreign buyers were playing by the rules (especially the rule that foreign residents can’t buy existing houses.) It was also about them hiking stamp duties etc for new dwellings.

At the same time, the Chinese government started cracking down on capital outflows. They started making it tricky for Chinese people to get their money out of the country.

And so the Chinese buy dried up. Prices in premium suburbs plateaued.

But now, maybe, the Chinese buy is back.

For the first time in a long time, China has started easing capital controls on their citizens. AFR has the story:

“China is relaxing limits on outbound investments by wealthy individuals and institutions for the first time in two years…Qualified Domestic Individual Investor, or QDII schemes, were launched in China more than a decade ago to enable asset managers to raise funds from individuals and institutions to invest offshore for the first time.

When a second round of the program was launched in 2015, property investment portal Juwai.com predicted it would inject a further $98 billion of Chinese money into the Australian residential property market.

…”Based on the foreign currency situation and market demands of the pilot projects in Shanghai and Shenzhen, it is planned than the total quota of the two cities will be increased,” the spokesperson said.

A new $US2 billion quota under QDLP was filled by the end of February. About $US1.26 billion of a $US2.5 billion quota for the QDIE has been filled so far. About $US90 billion in QDII quotas were granted to institutions from 2006 to 2015.

This is substantial. The amounts of money we’re talking about aren’t chicken feed.

But in and of themselves, they’re probably not enough to move the market too much.

What’s interesting though is what it signals – that maybe the capital clampdown we’ve seen in recent years is starting to thaw. That Chinese authorities might be more relaxed about citizens sending money offshore…

… and into Australian property.

And if the Chinese buy returns? Oh boy, look out.

Spiro Kladis
Managing Director, Cashflow Capital

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