Getting Chinese to Buy Your House Isn't Easy Anymore. Just Ask Cate Blanchett.By and
Cash is leaving China at an accelerated pace as yuan weakens
Chinese buyers squeezed by crackowns at home and in Australia
Australian actress Cate Blanchett wanted to sell her home on Sydney’s waterfront. The buyer who wanted it was from China. The trouble started right there.
Getting the money out of China proved impossible. The A$20 million ($14.9 million) price tag was far in excess of the $50,000 limit on what Chinese are allowed to convert each year due to capital controls. The would-be buyer couldn’t settle, and the deal fell apart -- one of dozens of failed sales affecting Chinese nationals in Australia, according to several realtors handling such transactions.
As Chinese citizens embark on an unprecedented buying spree of foreign property, the Blanchett case illustrates how such money flows have created an economic and political backlash, both in China and abroad. Nowhere is this clearer than in Australia, the developed nation most exposed to China.
Chinese authorities are stepping up capital curbs just as myriad restrictions in Australia have made mortgages tough to get for foreigners, putting buyers from China in a sandwich squeeze that could dent the property market down under. While that’s not unwelcome for Australia’s central bank, which is keen to take some steam out of rising prices, it shines a light on the struggle to digest China’s cash exodus as it flows further afield into locations from Malaysia to Florida.
"People are finding it’s very hard to get a mortgage here and then find they can’t get their money out of China, and they’re stuck,” said Lulu Pallier of Sotheby’s International in Sydney, who handles high-end sales to Chinese buyers.
Chinese authorities worry that outflows of capital, exacerbated by the declining yuan, could be a continued driver of devaluation. Estimated outflows in October reached $73 billion, picking up again after having slowed mid-year, according Capital Economics Ltd. Estimates from Bloomberg Intelligence show about $620 billion flowed out in the nine months through September.
President-elect Donald Trump’s proposed tax cuts and infrastructure binge could accelerate such flows by revving up U.S. growth and inflation and pressuring the Federal Reserve to lift interest rates faster than current market bets. The yuan has fallen almost 6 percent this year to the lowest level since mid-2008.
"If the U.S. rates rise and the U.S. economy accelerates, it will be a matter of time when more capital leaves China," said Stephen Jen, chief executive officer of Eurizon SLJ Capital Ltd. and a former International Monetary Fund economist.
Chinese banks have been told to tighten loopholes that allow individuals to evade capital controls, and police have started arresting people in a campaign to prevent cash finding its way out. Authorities have also banned friends or relatives from grouping together currency quotas, curbed the cross-border activities of underground banks and asked lenders to reduce foreign-exchange sales.
Still, there are plenty of alternative routes for determined buyers. Business owners can finance their home purchases through offshore trading companies, while some Chinese developers allow clients to pay for overseas units in yuan.
But those who succeed in getting their money out of China are now running into heightened restrictions in Australia. Last year, the government forced a company owned by China’s Evergrande Real Estate Group Ltd. to sell an A$39 million Sydney mansion, the highest-profile casualty of a crackdown on illegal home-buying by foreigners.
This year, Australia’s four biggest lenders and Citigroup Inc. said they’ll no longer approve mortgage applications in Australia that rely on foreign income denominated in Chinese yuan and four other Asian currencies. Westpac Banking Corp. said it wanted to support Australians and permanent residents’ home-buying instead.
So local financing alternatives are emerging. Australian billionaire developer Harry Triguboff has doubled the amount he’s lending to apartment buyers, especially those affected by the Chinese squeeze, according to information provided by his Meriton Group. Its mortgage book has swelled by A$50 million over the past four months to about A$120 million as bank funding dried up, it said.
Australia’s central bank in its Financial Stability Review in October highlighted the risk from buyers failing to close on property purchases. It said the property industry is showing mounting concern that this will become more common in the cities of Brisbane, Melbourne and Perth.
“These concerns arise from a combination of tighter financing conditions for purchasers, especially for non-residents and those reliant on foreign income, and valuations at settlement below the contracted price,” the Reserve Bank of Australia said.
Australia approved A$24 billion worth of Chinese real estate investments in the fiscal year ended June 2015 -- or a quarter of all such approvals -- according to the most recent data available. Chinese were by far the largest foreign buyers, followed by Americans with $7 billion.
Australian home prices have climbed by more than 50 percent since 2008 in the biggest cities, in part because of Chinese purchases. Restrictions on Chinese buyers by both China and Australia could take some steam out of Australia’s roaring east coast property market, giving the central bank scope to leave interest rates unchanged for an extended period as it seeks to support other areas of the economy.
“Settlement issues from overseas buyers means additional supply in pockets of inner-city Brisbane, Sydney and Melbourne where there’s already some emerging downward pressure on prices,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “If that has a broader ripple effect, together with a construction cycle peak, it could give the RBA more flexibility.”
Meanwhile, Oscar-winner Blanchett’s sandstone manor in the Sydney suburb of Hunters Hill -- with six bedrooms, a tennis court and a pool with private spa -- is back on the market. While there’s still strong demand for Australian property from Chinese buyers, their inability to raise funds is dampening enthusiasm for dealing with the previously cash-laden and lucrative group, according to Scott Kirchner, who runs China operations from Shanghai for Australia’s Beller property group.
“We are reluctant to take on new clients unless they have 100 percent of the cash for a property,” he said. “But then there’s the issue of how do they get the money out of China.”
— With assistance by Kimberley Painter, Emily Cadman, and Dingmin Zhang