Chinese Buying Sydney Homes at Unprecedented Rate, McGrath Says – Bloomberg 09-12-13

Salient to Investors:

John McGrath at McGrath Estate Agents said:

  • Home prices in Sydney could rise 5% to 10% by as much as 10 percent over the next 12 months, because as much as 80 percent of homes in parts of Sydney are being sold to Chinese buyers, driven by record low interest rates.
  • The Chinese are buying for capital growth and to provide a home for their children attending university in Australia or simply to live outside China.
  • Rental yields above 4 percent is also spurring price gains.
  • Sydney’s house price growth rate is unsustainable.
  • Demand is coming from the growth of self-managed superannuation funds, or SMSFs, which can invest in stocks, bonds, cash deposits, property, artwork and even wine.

The Foreign Investment Review Board said Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the US and Singapore in F2012.

Australian Finance Group said almost half of all their home loans in New South Wales were to investors in August, the highest level ever recorded in any Australian state.

Read the full article at  http://www.bloomberg.com/news/2013-09-12/chinese-buying-sydney-homes-at-unprecedented-rate-mcgrath-says.html

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Home prices in Sydney could rise by as much as 10 percent over the next 12 months, driven in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents.

As much as 80 percent of homes in parts of Sydney are being sold to Chinese buyers, John McGrath, chief executive officer of the company that recorded A$7 billion ($6.5 billion) of property sales in the year to June 30, said in an interview in Sydney yesterday. Record-low interest rates and the biggest influx of investors in almost a decade are also fueling prices.

“The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market,” McGrath said. “Record low interest rates, the ability to fix such rates for a long period of time is very attractive.”

Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the U.S. and Singapore in fiscal year 2012, the latest figures from the Foreign Investment Review Board showed. They accounted for A$4.2 billion of transactions, a 75 percent jump from 2010, according to the data.

Chinese are buying in Australia on expectations of capital growth, to provide a home for their children attending university in the country or simply to live outside China, McGrath said. At a recent property auction in Eastwood, 17 kilometers (11 miles) northwest of Sydney’s city center, all 38 of the registered bidders were Asian, McGrath said. The three-bedroom house with a double lock-up garage and two sun rooms opening on to the back yard, sold for A$2.39 million, more than A$1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.

Highest Bidder

In an auction, serious potential buyers register their interest before it starts and an auctioneer then solicits offers. If bids reach the minimum price sought — the reserve price — the house is sold to the highest bidder. If the maximum bid is below the seller’s minimum price, the home is “passed in” and remains unsold.

McGrath, which has offices in New South Wales, Queensland and Canberra, has created a China desk in Sydney to cater to Mandarin-speaking clients and could eventually start operations on the mainland, he said.

“I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,” McGrath said in a separate interview with Bloomberg Television.

Rising Rents

While Sydney has been a “stellar performer” over the past six months, the city’s house price growth rate is unsustainable, he said.

House and apartment prices in Sydney rose 7.4 percent in the eight months to Aug. 31, compared with a national average of 5.1 percent, the RP Data-Rismark Home Value Index showed. More than 85 percent of the homes that went to auction in the city sold successfully in the first weekend in September, the highest rate since 2008, according to Australia & New Zealand Banking Group Ltd. (ANZ)

“There are long-term growth prospects but the current growth rates probably need to slow at some point soon,” McGrath, who forecasts prices could rise by between five and 10 percent in Sydney in the next year, told Bloomberg Television.

Demand from investors, drawn by rental yields that remain above 4 percent even as mortgage rates drop below 5 percent, is also spurring price gains, he said.

Investors Surge

Almost half of all home loans in New South Wales state negotiated by Australian Finance Group Ltd., the nation’s biggest mortgage broker, were to investors in August, the highest level ever recorded in any Australian state, the company said.

Adding to the growth of investors in property is the rise of self-managed superannuation funds, McGrath said. The funds, valued at A$506 billion now, are expected to rise to A$2 trillion by 2030 as more Australians choose to manage their own pensions, according to an estimate from the Australian arm of consultants Deloitte Touche Tohmatsu Ltd.

SMSFs can invest in a broad range of assets including stocks, bonds, cash deposits, property, artwork and even wine. Under certain circumstances, they can borrow money to invest in property and equities.