Are Capital Controls Clamping Down on Chinese Purchases of Aussie Homes?

Inquiries from Chinese buyers about Australian homes have fallen by nearly 25 percent this year, according to one of the leading real estate platforms down under, and the dropoff in mainland appetite for Aussie property just might be the result of restrictions on cross-border capital flows from China.

Visits from buyers in China to the realestate.com.au website fell by 24.9 percent during the first four months of 2016, compared to the same period last year, according to figures from the REA Group, which operates the property listing platform.

After more than $1 trillion left China last year amidst growing concerns over the stability of the renminbi, the Chinese government has taken a number of steps to stem the outflow of capital across the country’s borders. Measures both formal and informal have been making it more difficult for Chinese private individuals and small companies to buy expensive overseas homes.

Mid-Range Chinese Buyers Becoming Scarce

While Australian developers and agencies still report healthy interest in ultra-high-end properties from mainland buyers, properties which are priced at levels that would require significant cross border cashflows were they purchased from China, but would not be considered by the country’s politically connected elite, have been getting harder to sell.

“When we used to have new projects, more than enough people would register before we even pre-sell,” a representative of Sotheby’s International Realty, which represent high-end luxury homes recently told Sydney’s Daily Telegraph. “Now, most projects are lucky to even sell 20 per cent; it’s very slow.”

Local Australian restrictions put in place recently have also dampened Chinese demand down under, after two of the country’s big four banks stopped issuing mortgages to non-residents. This hurdle now makes it necessary for Chinese buyers to bring in the total purchase price of a home in cash – a tough task considering the country’s $50,000 annual limit on cross-border cashflows by private individuals.

Capital Controls Aim to Stanch Cross-Border Bleeding

While China has never officially announced capital controls, a move which would essentially admit a major step backward in the country’s liberalisation drive, authorities in Beijing appear resolved to restrict cross-border flows after mainland foreign exchange reserves dropped by an estimated RMB 500 billion to RMB 650 billion ($84 billion to $99 billion) in 2015.

To check foreign exchange purchase by wealthy mainland individuals, China’s foreign exchange regulator has been monitoring such exchanges of renminbi for US dollars and other currrencies, and has been holding individual bank managers accountable for any outflows deemed excessive.

Companies have also been receiving greater scrutiny, with Hong Kong announcing a major push last month to cut down on illicit trade financing, usually overinvoicing of imported goods or fake trades, which authorities in the city blame for billions of dollars in unauthorised cash outflows.