Are FIRB figues a good guide? – George Chmiel

Are FIRB figues a good guide? – George Chmiel

George Chmiel from Juwai.com, the No. 1 Chinese international real estate website, talks about the findings inside the latest FIRB report into foreign investment in Australian property.  Just what is behind the reduction in interest in Aussie property?

Transcript:

Kevin:  My next guest is Georg Chmiel. Georg is the director for Juwai.com. I want to focus very much on the most recent Foreign Investment Review Board report, which covers the period up to the end of the financial year last year, the end of June. It shows a very clear picture about what’s happening with foreign investment in view of some of the recent changes that have occurred to investment in Australia.

Georg, were there any surprises in this report? Because it does actually reflect that investment may have just slowed down from China?

Georg:  There were a couple of surprises, especially in the reaction to the report by various media outlets. I was reading headlines like “China crackdown sees property investment fall by 65%,” referencing the study.

Now, first and foremost, the total investment into Australia has dropped from $250 billion to $200 billion. Of that, residential property is a small share. So, all the other investments stayed pretty stable – so investment in non-real estate and investment in commercial real estate.

When it comes to residential, we are talking about approvals. We’re not talking about actual purchases that the report covers. And there was a fee introduced for lodging an application to obtain FIRB approval. And this has actually distorted the result, because people in the past lodged multiple applications for approval – the same person multiple applications – and with the fee, that has slowed down.

So, even the FIRB says – and I quote from the report – “This suggests that the resulting reduction in approval may not imply a corresponding reduction in actual investment in residential real estate.”

So, long story short, on the one side, we have the press who obviously say China is slowing down its investment into Australia. On the other side, there’s actually far more to this story. Yes, there have been capital controls put in place on the Chinese side to streamline the investments overseas. However, this hasn’t really slowed down overseas investments.

The second bit is that there have been some factors being put in place – like stamp duty increases, certain regulations on the side of Australia – and that has led to a certain change in terms of the investment pattern. But I would not want to say that there is a dramatic drop in purchases.

Kevin:  Yes, and we’d hope that wouldn’t be the case, because if we look a little deeper into the figures, about 88% of investment approvals in residential property are actually for new development, and we need new development. We need increased housing stock. We’re not even meeting the current demands, Georg.

Georg:  I completely agree. The ultimate aim of everyone living in Australia is to live the Australian dream – to own a home, be it an apartment or a house. This is for the people in Australia. The focus for foreign investors is only on the new properties.

There were certain legislation introduced that actually make complete sense. One is a cap for foreigners to invest into a property to 50%. So, 50% of the units in an apartment block can go to foreigners. Why is this important? It’s very important for people coming to the country – I migrated myself – to get integrated. Not live in isolation in a foreign community but become a real Australian.

The second bit of legislation that was introduced was around vacancy, a penalty for leaving properties vacant. Again, this makes perfect sense. And the last one is I think it’s very important to get these foreign investments into Australia because there’s also additional investment and infrastructure investment following, and that actually helps everyone, the foreigners as well as the locals.

Kevin:  Georg, just turning our focus to commercial property for a moment, I noticed that commercial real estate investment dropped by just a touch over 10%, from $50 billion down to $44 billion. How much of that has to do with the new China-Australia free trade agreement?

Georg:  There might be a link to it, but I don’t have any data to say it has a lot to do with it. There could be many factors. There are always variations from year to year, so the investment in service assets has more than doubled, the investment in mineral exploration has come down by roughly 40%. So, there are year-on-year changes.

I think that the big trend is pretty stable in commercial investments, but the key determining factor was really the big variation in residential real estate, which got everybody a bit excited.

Kevin:  I notice in that free trade agreement that Chinese investors no longer need to request investment approval before purchasing developed commercial property worth less than just a touch over $1 billion. I just wondered whether that had something to do with it.

Georg:  It probably would have something to do with it, but there wasn’t much context given.

Kevin:  So, what does the future hold? What sort of properties are Chinese investors looking for? What are you seeing through Juwai?

Georg:  It depends a bit on the usage. There’s the education segment. Obviously, that targets predominantly the apartment market. There’s a certain retirement segment, which is more towards apartments and also detached houses or townhouse categories, and there’s the investment segment, which goes across apartments as well as houses.

Most of the new building approvals and the big growth in the building approvals has been in the apartments. And even Australians are preferring more and more apartments. It swung back a bit to landed properties a couple of years ago, and it seems to go back because the type of apartments are getting far more sophisticated, far more luxurious, and so on, and they’re hassle-free for people who want to downsize.

Kevin:  It’s always interesting to follow it, Georg, and I appreciate you giving us that update. Georg Chmiel has been my guest. Georg is the director of Juwai, which is the number one Chinese international real estate website.

Georg, thank you so much for your time.

Georg:  Thank you, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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