China’s most recent capital controls, introduced on the 1st of January, are having an immediate effect, with fewer Chinese buyers able to purchase property abroad. From London to Melbourne, Vancouver to Sydney, Chinese citizens are struggling to close property transactions in some of the world’s largest property bubbles.
International experts believe the drop in demand is expected to be worst felt in Australia, the biggest beneficiary of the capital outflow. According to Christopher Todd at consultancy firm Basis Point, Australia approved A$24 billion of real estate investments from China in the financial year ended June 2015, the latest figures available, making Australia by far the largest destination for Chinese buyers.
China’s currency has plunged to eight year lows on the back of a record braking capital flight. Its foreign exchange reserves has been slashed to $3.052 trillion, the lowest in almost 6 years. To help stem the tide, China further tightened controls on foreign exchange, a day prior to quotas resetting on the 1st of January.
In a statement from China’s State Administration of Foreign Exchange (SAFE), it said it wanted to stamp out money laundering and illegal overseas property purchases. While the regulator has left the quota of $50,000 yuan (A$9,600) foreign currency, per person, per year unchanged, it has significantly increased disclosure requirements. Chinese citizens must now pledge the money wont be used for overseas purchases of property, securities or life insurance. They must also give detailed accounts of what the money will be used for. Banks will now report any overseas transaction made by an individual exceeding $10,000 yuan (A$2,000).
Bloomberg reports on the despair:
“If it’s too difficult, I’m out,’’ said Mr. Zheng, 66, a retired civil servant in Shanghai who declined to give his first name to avoid attracting regulatory scrutiny. He may abandon a 2.4 million yuan ($348,903) home purchase in western Melbourne, even after shelling out a 300,000 yuan deposit last August. He’s due to make another big payment next month.
For Zheng, the decision on whether to walk away from his Melbourne property or risk breaking China’s foreign-exchange rules is fast approaching. He’s scheduled to wire another 800,000 yuan to Australia in late February to cover the rest of his down payment.
With the Lunar New Year starting today, an army of Chinese holiday makers are in the air heading for Melbourne and Sydney as local property agents prepare for the “golden week”. The agents are already witnessing a substantial drop off in demand. Many Chinese view property with a tour group, but only half the number of buses are filled this year. Ray White Balwyn director Helen Yan told the Domain, fewer Chinese tourists would be hunting for property this year. A positive to come from all of this – they will have more time to enjoy a real holiday in Australia.
Happy Chinese New Year.
» China’s crackdown on capital outflows sending shudders through global property markets – The Straits Time, 27th January 2017.
» China’s Army of Global Homebuyers Is Suddenly Short on Cash – Bloomberg, 27th January 2017.
» China Gets Strict on Forex Transactions to Stop Money Exiting Abroad – Bloomberg, 3rd January 2017.