Chinese home buyers caught in a trap

The apartment near Monash University that Liu Jiabing bought off the plan for $600,000 is keeping him up at night.

‘How am I supposed to find so much in cash?’: English teacher Liu Jiabing, 43, and his daughter Kristina, 17, in Nanjing. Picture: Dave Tacon

As a renowned teacher of English in China, Liu Jiabing planned well for his daughter’s education. He chose a good university in Aus­tralia, helped her to get an offer to enrol next year, and bought an apartment in Melbourne that is due to settle next month.

But now the apartment near Monash University that he bought off the plan for $600,000 is keeping him up at night.

“At the very first, I was told I only had to pay 20 per cent downpayment,’’ Mr Liu, who works at a prestige foreign language school in Nanjing, in China’s east, told The Australian in a phone interview. “Then they told me I had to pay 30 per cent, and later 40 per cent, as the banks won’t lend and we have to borrow from small ­financial organisations.

“Last night I was told I have to pay 55 per cent for down-­payment. But how am I supposed to find so much in cash in such a short time? I still have to pay my daughter’s university fees.”

Mr Liu is just one of those Chin­ese parents who buy homes, usually new apartments, before sending their children to Aus­tralian universities.

Education is the top motivation for Chinese buyers of properties here, driving more than 60 per cent of inquiries in Sydney and Melbourne, accord­ing to Juwai, an international pro­p­erty portal for Chinese buyers.

However, these buyers are now struggling to settle their purchases after all the big banks shut down lending to overseas buyers. They may have to pay in cash, ­resell at a loss or simply lose the 10 per cent deposit.

The extent of the impact on Australia’s property market remains unclear, but could be severe given that overseas buyers comprise about 30 per cent of the new apartment market. At some indiv­idual projects, the portion can be 50 per cent or even 100 per cent, according to industry experts.

That percentage could translate to a large number of apartments at settlement risk, with CoreLogic RP Data finding that 231,129 new apartments are due to be settled in the coming two years in Australia’s capital markets.

While Mr Liu sets about finding the money from friends and families to help make the down-­payment, AC Property, a Melboune-based property portal, has four or five calls every day from buyers who seek to resell their off-the-plan apartments after finding it hard to settle.

“We have been referring our clients to mortgage brokers to see if they can get alternative finance, but we haven’t seen a single case of success so far,” said AC Property ­director Esther Yong.

Mr Li, who declined to give his first name, is one of those resellers after the Melbourne CBD apartment his parents bought two years ago failed to settle.

“Everything looked fine when my parents bought it two years ago, and we were told they could get bank finance as overseas buyers,” said Mr Li, a sales representative in the telco industry.

“But now they could not get ­finance and could not settle.”

Mr Li’s parents, based in Guangzhou, in China’s south, have already missed the settlement deadline of July 18 for the apartment they bought for $440,000. The developer is now charging them about $150 a day as penalty, which is pushing Mr Li to resell as soon as possible.

“It’s OK if we can just get back 5 per cent, but we haven’t got any buyer yet,” he said.

Even if they could get finance, it would not be ideal to hold the property in the current market, Mr Li added, showing concerns about the limited profit upside.

“If we walk away, the worst thing is that we lose the 10 per cent deposit. But if we find ways to ­settle it, I am not sure what we can make out of this, as the market is not looking pretty.”

Mr Li’s concerns echo those raised in a report by BIS Shrapnel last month, which predicted that an oversupply of apartments and serious vacancy issues will bite all capital cities by June 2019.

Apart from lending controls, overseas buyers will also be hit by extra taxes in Victoria, NSW and Queensland, which is adding another layer of negative sentiment to the market.

Boxing Overseas, a Nanjing-based agent specialising in Australian properties, only sold two properties last month, compared with about 30 in previous months.

“The market is really bad now, particularly after July,” said managing director Jim Huang

“I have heard some agent having over 40 properties at default, which means the buyers just give up the 10 per cent deposit.”