An apartment building boom, heavily funded by the Chinese, has been responsible for a fifth of Australia’s economic growth over the past two years and is helping the country adjust to the end of the mining construction boom.
The number of new apartment projects winning approval from local councils has almost doubled since 2012-13 to 105,000 new dwellings over the past financial year. Apartments have accounted for 95 per cent of the growth in housing construction in that period.
Deloitte Access Economics partner Chris Richardson says housing construction is a relatively small sector of the economy but is important at turning points in the economy because it is one of the most volatile sectors.
“At its low in 2012, it fell to 4.5 per cent of GDP but it’s already up to 5.5 per cent of GDP, so one percentage point of growth has come from a tiny sector,” he said.
The latest June quarter national accounts showed housing construction was $4.3 billion, or 24 per cent, higher than in the same quarter two years ago. The nominal economy overall has risen $20.1bn, or 5.5 per cent, in that time.
Banking sources say the big four retail banks are involved in only 30 per cent of developments in Melbourne, implying foreign investors are responsible for the remainder.
An analysis by real estate company CBRE shows Chinese investors have led the rise in foreign investment in residential developments. In the year to April, foreign buyers won 54 of the 115 inner-city development sites sold in Sydney, Melbourne and Brisbane. Chinese developers were responsible for 36 of those deals.
CBRE estimates that Chinese investment in Australian real estate reached $6bn in the first six months of this year, which was 25 per cent of all offshore Chinese property purchases. Australia’s share of Chinese capital flowing into global real estate markets has risen from 10 per cent in the past two years.
Chinese-backed Aqualand bought about $1bn of development sites across Sydney and Perth, with the largest being its $180 million purchase of three waterfront buildings, including the Seven Group’s headquarters, in Sydney’s inner-city Pyrmont.
The firm’s general manager, Wayne Xiong, said it was one of seven projects being developed. He promotes the Pyrmont development, saying it combines preservation of heritage buildings on the waterfront with the opportunity for freehold purchase, offering “something highly sought after by local buyers as well as meeting the expectations of the international market.”
Ping An Insurance (Group) Co, China’s second-largest insurer, is expected to commit hundreds of millions to Australia’s housing market over the next few years.
The privately held company, which controls the separately listed Ping An Bank, is close to signing a deal with one of Australia’s biggest developers, Mirvac Group, to part-fund a luxury apartment complex in Sydney.
Chinese state-owned enterprises are also active. Greenland Holding Group, China’s largest state-backed real estate group, has a development portfolio in Australia worth more than $1bn.
Its largest project is Greenland Centre in Sydney’s CBD. It will be Sydney’s tallest residential tower, including 470 apartments and six penthouses over 66 levels, nearly all pre-sold. Local partner Brookfield Multiplex estimates construction will generate 5500 jobs.
CBRE executive director residential projects Justin Brown said international developers were transforming the apartment market. “The scale they’re used to dealing with is so much larger than local developers,” he said. “They have an additional perspective where they’re used to delivering 10 to 15,000 apartments a year.”
Joe Hockey suggested this week that Chinese investment in Australian real estate would increase as a result of the turbulence in the Chinese sharemarket as investors sought to diversify.
The Treasurer has been highlighting the number of registered cranes in Sydney, with 72 in the CBD and 165 within a 1km radius to highlight the role of construction in easing Australia’s transition from the resources boom.
Labour force figures show the construction workforce has risen by 40,000 in the past two years at the same time as the mining workforce has contracted by a similar number. The winding down of construction in the resources sector as expansion projects are completed is slowing Australia’s growth, with mining investment falling from 8 per cent of GDP to 5 per cent in the June quarter, although this was offset in national accounts by increased output.
Foreign Investment Review Board figures show Victoria is getting most of the offshore property funding, with foreign purchasers, who are restricted to buying new properties, accounting for just over 18 per cent of all residential sales in the state, compared with 10 per cent in NSW.
ANZ senior property analyst David Cannington said the growth in apartment construction was being driven by high-rise developments, which are running at an annual pace of 80,000 dwellings, up from 33,000 in 2012-13. He said nearly all the projects were pre-sold, with little evidence of purely speculative property development by foreign investors.
CBREs Mr Brown noted the diversity of the foreign entrants, with Malaysian and Singaporean groups moving into Melbourne, as well as Queensland, and Chinese groups active in Sydney and the Gold Coast.
Mr Brown argued that apartment projects in Australia were now being chased by global investors.
“Sydney has moved itself into near the top-tier cities,” he said. “London, New York, Paris, Shanghai and Hong Kong and then we’re at the top of the next tier.”
Colliers International managing director of residential Peter Chittenden predicted the wave of Chinese buying will continue. Colliers International has just sold three separate apartment sites in Sydney for more than $150m each.
Mr Chittenden said there were 25 under-bidders in the sales, leaving about $4.8 billion worth of capital chasing apartment projects to develop.
“Half of those people were Chinese and half were locals,” he said.
This article first appeared in The Australian.