Chinese and local developers must hold realistic expectations of Australia's residential market going forward, according to Knight Frank. 

The agency's latest report, Chinese Developers in Australia – Market Insight 2019, found that Chinese developers purchased $1.3bn worth of Australian residential development sites in 2018, which was down from $2.02 billion in 2017.

The figure accounts for 31 per cent of all development site sales for the year, reflecting a slight dip from the previous year, where Chinese purchases made up one third of all sales.

Chinese Developers in Australia – Market Insight 2019 - at a glance

• Chinese developers purchased $1.3 billion worth of Australian residential development sites in 2018.
• Of the 31 per cent of sites snapped up by Chinese developers, sites suitable for low-density living (houses) rose from 29 per cent in 2017 to 41 per cent in 2018.
• The report found that almost 11 per cent of all new apartments built in 2018 were by Chinese developers

Knight Frank Australia Head of Residential Research Michelle Ciesielski said while Chinese developers have ramped up their presence within Australia throughout the past five years, they had been met with various challenges.

“Chinese outbound investment has impacted by the Chinese government attempting to moderate capital outflow, as well as from Australia's domestic banks restricting lending to offshore borrowers," she said.

“The current challenges being faced by local developers include changes to Foreign Investment Review Board (FIRB) rules and the Australian Prudential Regulation Authority (APRA), which are encouraging stricter lending practices for investors.

"There has also been the introduction for state-based surcharges.”

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Knight Frank Partner and Head of Asian Markets Dominic Ong. Source: Knight Frank

According to the report, 41 per cent of sites purchased by Chinese developers in Australia last year were suited to low density (single dwellings or landed properties), representing a 12 per cent increase from 2017 and a 39 per cent increase from 2013.

Knight Frank Partner and Head of Asian Markets Dominic Ong said the majority of Chinese developers who entered the Australian landscape with the intention of settling in for the long haul were now diversifying their portfolios to adapt to local market trends.

“Over the past year, the likes of Zone Q, China Poly Group, Yuhu Group and Aqualand have increased their exposure to office assets and this trend is likely to continue in 2019," he said.

The report also found that almost 11 per cent of all new apartments – out of 5,160 apartments built in 2018 – was by Chinese developers, with this share projected to rise to 22 per cent in 2021 for the major Australian cities.

According to Ms Ciesielski, these new apartments were concentrated on the major east coast cities of Brisbane, Sydney and Melbourne.

“This includes those projects which have already commenced and those with development approval which are currently being marketed. With current headwinds heading into 2019, the likelihood of all projects proposed by Chinese developers going ahead over the next couple of years is diminishing, except those with an exceptional product," she said.

"Projects submitted for development approval and those already with approval, but not yet having started marketing campaigns, tend to taper off substantially for Chinese developers, with less than 6 per cent of total projects in the pipeline."

This article was originally published on The Asean Developer.

Source: Knight Frank

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