Chinese property investor slowdown a temporary glitch

New Zealand's popularity ranking with Chinese property investors has slipped a notch since the government and Reserve Bank introduced new buyer restrictions last October.

Simon Henry who co-founded and heads Juwai, a company helping Chinese buy properties overseas, says New Zealand shifted to fifth from fourth most popular country in the world with potential property buyers in China between the third and fourth quarters of 2015.

But Mr Henry, whose Chinese language website has 2.6 million unique users monthly, predicts Chinese buyers' interest in New Zealand will return in force by mid-year once they've fully digested the new requirements.

They include non-residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand tax number, requiring non-residents to have a New Zealand bank account, a "bright line" test to tax gains from residential property sold within two years of purchase, and residential property investors in Auckland needing a deposit of at least 30%.

Since October, local real estate players have reported Chinese property investors have been scarce in the rampant Auckland market after being regarded as a major factor in the last year's rapid price increases.

The latest Massey University home affordability survey shows a 1.4% improvement in the affordability of Auckland homes in the fourth quarter of last year, although they remain 59% less affordable than houses in the rest of New Zealand.

Mr Henry says the reaction is likely to be only short term, particularly for Chinese investors looking to immigrate or send their children to New Zealand. It may have a stronger impact on investors in lifestyle properties such as luxury homes and hobby farms, he says.

"Most purchases are in the major cities with Chinese buyers commenting rural properties in New Zealand are not big enough. They're looking for larger land purchases," he says.

Juwai is forecasting 10-15% growth in global property investment by Chinese investors in 2016. A final figure is not yet out for 2015, although the website company has previously predicted growth of 15-20% on the $US52 billion achieved in 2014. It's also forecasting that figure to rise to $US220 billion by 2020.

In its top 10 China trends to watch in 2016, Juwai says there was a marked policy shift last year with numerous measures implemented, such as the second phase of its Qualified Domestic Individual Investor (QDII2) programme allowing Chinese to buy overseas property, which will expand under the newly-announced 13th five-year Plan.

"Coupled with financial sector reforms, plus increasing demand from businesses and individuals, it's likely to be another bumper year of outbound investment", Juwai says.

Mr Henry says the Chinese outbound property cycle is still nascent, with more buyers aware of Australia than New Zealand.

"That's starting to become less of an issue with more tourism marketing and promotion of New Zealand and better direct flights to China," he says.

But buyers now regard Australia as an easier place to buy property, given they can purchase off the plan or new residential property with no barriers, although existing houses can only be bought with Foreign Investment Review Board approval. Australia backed off plans to have a national register of residential property transactions to improve detection of illegal foreign purchases.

"Australia and New Zealand are competing with the US, Canada and the UK where there are no restrictions on foreign buyers," Mr Henry says.

However, the two countries will benefit from recent depreciation in their currencies, making them cheaper investment destinations than North America or the UK.

Mr Henry says Juwai has identified four key reasons Chinese buyers want to buy property offshore.

The first is cashed-up investors with large property portfolios in their home country and wanting to diversify. Immigration and education are two further factors, with New Zealand still well-perceived as a place to live, with good educational institutions and a safe environment for children. Chinese parents prefer setting their children up with their own homes while studying abroad.

The fourth reason was lifestyle, with investors wanting trophy homes or lifestyle blocks.

China's recent sharemarket turmoil is unlikely to halt the momentum of China's growing middle class and high net worth individuals buying property offshore, Mr Henry says.

"The sharemarket is a relatively new phenomenon in mainland China and very few people own shares," he says. Chinese property investors tended to be savers, unlike in many western countries.

"The Chinese property purchaser doesn't like to have debt and they are cautious about what they invest in and how much they invest", Mr Henry says.

(BusinessDesk)