Chinese buyer profile is changing say Australian residential developers

The residential property market is well into recovery but the new apartment market is still catching up

7 January 2019 | Marcus Reubenstein

After a two-year market slump, in November Australian residential property prices enjoyed their biggest month-on-month increase since 2003. Doomsayers, who twelve months ago were predicting a crash of up to 25% across Australia’s residential property market, have been proved wrong.

With the Australian Reserve Bank’s official interest rate at an all-time low of 0.75%, and predicted to fall further this year, lower mortgage rates have fueled local confidence in the market for existing dwellings.

Leading industry players say the residential property development industry will face challenges as it emerges from the slump. With property investors yet to return in full force, developers are still struggling with new apartment sales and raising project finance. The buyer profile is also changing with developers saying Chinese families and owner-occupiers are replacing the market speculators who snapped up new apartments in parts of Sydney and Melbourne at the height of the boom.

Speculators sitting it out

Ongoing restrictions on lending to investors has slowed their return to the market, which is dampening sales of news apartments. “What it actually does is filter out the property speculators and filter in the buyers who are able to pay cash; that’s been fantastic for us because we target more of the upper-end market,” says Iwan Sunito, CEO of the Crown Property Group.

The private developer has projects in Australia’s three major eastern cities, Sydney, Melbourne and Brisbane. Crown Group’s main focus is on the once industrial south-eastern suburbs of Sydney with four projects all located within a six-kilometre radius of the city centre and three of Australia’s top universities, University of Sydney, UTS and UNSW.

Sydney remains the country’s most expensive market for residential property, in the post-boom consolidation period developers are turning their attention to areas on the fringe of the CBD. “We have more than $2.5 billion in the development pipeline in this area, simply because we believe in the future that is being shaped here,” Sunito says.

Sluggish sales in Sydney’s west and Melbourne’s CBD

Leading independent property economist, Dr Andrew Wilson of My Housing Market, says, “Sydney still has a clearance problem in the outer western suburbs where developers are finding it hard to sell new apartments.

According to Dr. Wilson, “Melbourne has the opposite problem as CBD apartment sales remain soft because people in Melbourne prefer to live in the suburbs.”

Presently most of the positive property data in Australia relates to established houses, not newly built developments. Says Dr. Wilson, “New apartment sales are improving but are nowhere near the levels they were three or four years ago. I think Chinese investors are definitely sitting on the sidelines, even though my conversations in the market suggests they do have the funds to make purchases.”  

Chinese owner-occupiers now in the market

According to David Milton, Managing Director of Residential at CBRE, the Chinese buyer profile has changed. “With Chinese buyers there was a period where it was mainly high volume investors,” he says, “but now we are seeing far more particular buyers, who are purchasing in Australia either because they are planning on moving here or their children are studying in university.”

Another popular area is the south of Sydney around the suburb of Hurstville which boasts a large Chinese population. “In the market boom,” says Will Wehbe, Sales Director of the St Trinity Property Group, “a very large number of Chinese buyers were just buying properties on the recommendations of friends and acquaintances.”

According to Wehbe, “There’s now Chinese interest in developments with a high component of non-Chinese owners because more discerning buyers are saying if this development is trusted by local buyers, then this means it is a good project.”

He also says Australian developers welcome these new Chinese owner occupiers because they typically maintain their properties far better than investors who rent out their properties.

For Crown Group’s Iwan Sunito, who is the only architect running a major Australian property development company, this is the profile of buyer he is trying to attract. “Inherently as an architect,” he says, “I’ve always built on design and it’s the richness of the living experience that makes Crown Group different.”

Crown says its higher quality design and construction allows it to command higher sales prices than other local developers. One of its penthouse apartments recently achieved a record price for the area of $26,012 per square meter, which is almost double the average new apartment price for Waterloo. The buyers were a young Chinese family who will relocate to Australia next year.

Building standards are being addressed

Evidence suggests buyers are also showing a great deal more caution when it comes to choosing developers after two high rise apartment buildings in Sydney, Opal Towers and Mascot Towers, were found to have had major structural defects which forced the evacuation of hundreds of residents from their homes. 

Though the regulatory environment has tightened, market observers say poor building standards are often symptomatic of market conditions. Says Iwan Sunito, “There’s been a lot of growth in the past few years where everybody has suddenly become a developer. Overnight they grow from building 20 units to 300 units, from building 100 units to building a shopping centre.

“That’s where the problem is, they don’t have the capacity, they grow too fast in a short time and they are under resourced. Developers pay too much for land and they try to construct buildings too cheaply, so they try to go for smaller builders that are not ready to build at that next level too and that’s when problems do happen.”

Sales agent Will Wehbe warns that the problem has not completely gone away. He says, “There are still developments which are not yet completed where the construction contract may have been struck up to two years ago. A number of those contracts would have been determined on cost considerations not quality.”

He has this recommendation to Chinese buyers, “Your first point of due diligence should be to look at the record of the property developer and also the builder. It’s perfectly acceptable to not only ask what they’ve built before but ask to be shown those buildings.”

With many developers abandoning projects over the past two years, the availability of new apartments in Sydney and Melbourne is expected to soon reach the point where there will be supply constraints.

Says Dr. Andrew Wilson, “I think unsold apartment stock will clear by the middle of this year; and developers with a solid track record will certainly have the marketing edge in attracting buyers.” He cautions under-supply is looming, “With investors on the sidelines, developers will take longer to raise capital from the banks.”