Chinese buyers of Australian apartments abandon contracts due to tighter rules

By @vitthernandez on
Melbourne Apartments
Advertising signs are seen near a high rise apartment building site in central Melbourne March 1, 2011. Reuters/Mick Tsikas

The warning of a property funding crisis in Australia has come to pass as potential Chinese buyers of apartment units in the country are walking away from their contracts. The crisis is most felt in Sydney, according to Harry Triguboff, a developer and the largest apartment owner in the city.

Triguboff says many Chinese buyers of flats in Sydney who purchased it off-plan by placing a 10 percent deposit are beginning to walk away from the contracts to buy. In abandoning their contracts, the buyers lose their deposits, while agents must return the commissions, reports The Australian.

The crisis was triggered by Australian banks freezing funding of Chinese buyers, forcing the overseas purchasers to rescind their contracts or borrow at usurious interest rates. Such incidents used to be rare in the past because Chinese are known for honouring their contracts.

The situation is expected to be worse in Melbourne where a lot of one-bedroom units were bought by overseas Chinese investors who paid only a 10 percent deposit. Sydney Morning Herald reports that Melbourne’s apartment boom is not limited to the Southbank sites and commercial business district but has spread to the inner Melbourne area, based on building approvals data the past 12 months.

Besides the tighter lending situation in Australia, Beijing is also tightening the noose on foreign currency leaving China for real estate purchases abroad. However, some of the mainland buyers who have backed out have been replaced by Hong Kong residents who have less problems remitting foreign currency payments to Australia.

The crisis, though, benefits the apartment owners who get to keep the 10 percent deposit, is reimbursed the commission by the agent and sells the same unit to another Asian at a higher price.

VIDEO: Chinese Buyers Invest in Australian Properties

Source: CCTV Global Business