Four common misconceptions about Chinese property buyers

1. Chinese buyers are cash buyers

There is a widely held belief that Chinese buyers pay for their real estate purchases in Australia in cash and there is little need for them to borrow. This could not be further from the truth. In fact, according to a recent survey from GiFang -- a Chinese language website that specialises in selling property to overseas investors -- conducted across 283 buyers online, 97 per cent of Chinese buyers in Australia rely on mortgages.

The big four banks have all established offices in China in order to assist China-based buyers to purchase Australian properties using home loans. Westpac is responsible for 70 per cent of all home loans from China, according to our survey results as well as a banking source.

These banks are responsible for making 85 per cent of all home loans of Chinese property buyers in Australia. This number is expected to increase to more than 90 per cent by the end of 2014. Chinese buyers generally accept the idea of investing with "OPM" (other people's money) and love the fact that a minimal amount is required to own or control real estate in Australia.

The situation is different in China where property buyers are forced to use more cash to buy properties. For example, Chinese banks will only lend up to 70 per cent of the value of the home to borrowers for their first purchase and 30 per cent for their second home. Third purchases are usually not allowed.

As a result, most Chinese buyers have no choice but to use larger amounts of cash. According to the results of 50 GiFang seminars in 2013, approximately 60 per cent of potential buyers were not familiar with how to purchase properties in Australia by borrowing from banks; less than 35 per cent were not aware of the "interest only" programs offered by most banks in Australia; and 17 per cent weren't even aware that they can borrow from Australian banks.

It is worthwhile pointing out that such awareness has dramatically improved over the last three years, thanks to the fast growing number of China-based agents who specialise in selling Australian properties.

2. Chinese investors buy on the spot

You have probably heard a lot of stories about Chinese buyers turning up at auctions with suitcases packed with cash and making an on-the-spot decision to buy the property without a proper inspection.

Very few of these stories are true or are at least exaggerated. In our survey conducted in China, 63 per cent of buyers said they would ask a friend or relative based in Australia to inspect the property for them, and the remaining 37 per cent believed it was a must for them to inspect the property personally before making the final decision.

Even if the property is an off-the-plan apartment, they will still travel to Australia to get a feel for the location and to conduct personal research. According to our survey, we found that less than 9 per cent of potential buyers would take 3 days or more to decide to purchase a property.

3.  Chinese buyers will buy over and above the market price

This is perhaps the biggest misconception of all. The reality is, purchasers from a foreign country are less likely to know what the market price is, and let alone be able negotiate a lower price.

At our property events in China, buyers often talk about Australian house prices in terms of a price per square metre. This comparison makes Australian properties look cheaper than they are, although the capital growth might not always be better. The fact is, they have little access to property data like we do here.

The stories about Chinese property developers buying in Sydney and Melbourne at prices above the market value are somewhat misleading and are largely based on comments made by agents to impress their vendors.

Chinese developers are especially smart with numbers, often working out the acceptable site acquisition cost based on a fixed return on investment, which then becomes the basis for negotiating the purchase cost with the vendor.

The misconduct of Chinese agents also contributes to the perception that Chinese buyers are willing to pay for above the market price. It is believed that one in 10 China-based agents are involved in selling Australian properties according to a two-tiered pricing structure.

Some agents sell at more inflated prices to China-based buyers. When developers promote house and land packages to buyers in China for areas such as Point Cook, Sanctuary Lakes and Tarneit, the land component of the package can sometimes have a higher price in China. They are “exclusive lots” for Chinese buyers that are only promoted in China.

4.  Chinese buyers do not care about rental yield (land banking)

In China, cities such as Beijing generally have a vacancy rate of 20-30 per cent and in some places like Ordos (a city in Western China), the vacancy rate is a jaw-dropping 73 per cent. The Chinese are used to properties being vacant as investors generally rely on capital gain and not rental yield. 

As Chinese investors become increasingly educated about the Australian market, rental yield becomes more and more important. Gifang's surveys in China show that more than 90 per cent consider rental yield an important aspect to their property purchase, with the acceptable rental yield at 5 per cent.

More than 72 per cent of investors consider capital growth as more important than rental yield but all of them prefer to have a balance. For residential properties, some Chinese investors would rather leave the property vacant for most of the year until they visit Australia and use their properties for personal enjoyment. These properties are usually beachside mansions and penthouse apartments.

Michael Yang is the CEO of GiFang.com, the largest Chinese language property site in Australia.