Clampdown on foreign property buyers fail to dampen Chinese demand for Australian real estate

Chinese Property Buyer — The Sydney Opera House and Harbour Bridge can be seen behind real estate agent LuLu Sun (R) as she escorts Bao Fang, a potential buyer from Shanghai, during an inspection of a property for sale in the Sydney suburb of Vaucluse, Australia, July 11, 2015. Reuters/David Gray

HSBC says the clampdown on foreign property buyers by Australian banks failed to dampen the demand for Australian real estate by Chinese purchasers. Because of the surge of Chinese buyers in recent years, a sudden slowdown in demand from China is considered potential risk to house prices in key markets such as Sydney and Melbourne.

However, Graham Heunis, HSBC head of retail banking in Australia, says lending to foreigner steadied after logging a short-term decline in demand for credit because of the major tightening of lending rules. Credit rating agencies have warned Australian lenders the tighter rules could ease demand for property among overseas buyers, Sydney Morning Herald reports.

The banks have expressed concern over fraudulent applications from some foreign buyers which led to the tighter approval process and reduction in amount lent. It was not a problem for HSBC which had a staff in China to verify loan applications. Moreover, the Australian market is a small on for HSBC’s mortgage lending since its loan book of about $10 billion are mostly domestic borrowers.

In August, loans for foreign-occupiers went down to 3 percent, however lending to property investors went up 0.1 percent.

A good number of property buyers from China initially came to study in Australia but eventually decided to settle in the country and raise families. It made their off-the-plan flats purchased during their single years as small for a family, making it necessary to upgrade to bigger units, News.com.au reports.

Most of them bought apartments in 2012 and 2013, but since many now have kids, they are planning for the next stage of their lives, according to a 33-year-old Shanghai-born accountant who pursued a Masters degree in Sydney, rented for a few years and purchased a flat in Macquarie Park in 2012 for $570,000.

Not all upgraders buy bigger new units. Some prefer second-hand homes so they do not have to compete with foreign property investors at higher prices.

To go around the tighter lending rules, some Australian real estate agents use the WeChat app developed by Tencent, a technology giant in China. The app allows the agents to reach 70 million WeChat users who live outside the mainland and are potential property buyers in Australia.

VIDEO: BBC NEWS – Chinese Investment in Australia