Taking shelter – Chinese real estate capital in Australia and New Zealand

Taking shelter: Chinese real estate capital returning to Australia and New Zealand

• The current concern for China’s local property market does not appear to be impacting the Chinese appetite for Australian and New Zealand real estate assets.
• The level of inbound Chinese demand is either the normalisation of trade or an investment safe haven in the face of their home country’s economic uncertainty. It also coincides with the lifting of travel bans for mainland visitors to Australia in August.
• Juwai IQI, reportedly the leading electronic platform for Chinese outbound property purchasers, ranks Australia as the number 1 market for buyer enquiries this year, supporting our anecdotal evidence.
• In the past month, we’ve seen a noticeable uptick in Chinese capital inflows for residential, commercial and agricultural assets we currently finance.
• We’ve directly seen over $55m of investment inflows in September, including the refinance of our largest dairy loan ($37m) by a Chinese family office, the balance sheet recapitalisation of a premium meat and livestock borrower by a Chinese shareholder, and our apartment residual stock facilities in Sydney and Melbourne transacting more than 50% of sales with Chinese buyers during the month.
• This rebound of capital is not a surprise given Australia’s place as the second largest recipient of Chinese Outward Direct Investment (ODI) behind the United States for the past 10 years. A return to 2019 levels of ODI would be a 36% increase on 2022’s $1.4b but still circa $7bn less over the 10-year average.

  

Source: KPMG/Sydney University database
Note: Prior year annual figures are updated with the latest
information as new information becomes available and as required.

Discussions with Chinese background developers across $1.5bn of pipeline opportunities indicate a clear intent to accelerate pipeline residential projects to take advantage of the current housing shortage in Australia and New Zealand’s capital cities.

With higher borrower rates, interest in residential projects is shifting quickly from house and land packages to apartments, driven by affordability and borrowing capacity concerns. Affordability is a key concern with mortgage payments now consuming 40% of income. Rent growth is projected at around 8-10% (UBSe), and rental vacancy rates remain below 2% in all capital cities (JLL).

The Merricks Capital Partners Fund (the Fund) currently has a 10% allocation to residential and residual stock facilities, and we expect this to increase a further 10-15% over the next quarter with two potential loans in due diligence and forecast to settle by December.