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China overtakes US as biggest investor in Australia after property splurge

[SYDNEY] China overtook the United States to become the largest source of foreign investment in Australia last year, driven by a surge in real estate purchases that is fuelling fears of a house price bubble.

Australian property has long been a popular choice for Chinese investors but investments appear to have sped up in the past year as Beijing's crackdown on corruption has gathered momentum.

China received approvals to invest A$27.65 billion (S$29 billion) in Australia, with almost half going into real estate, according to the 2013/14 annual report of the Foreign Investment Review Board, which oversees international investment.

"Demand from Chinese and Asian investors into Australian real estate will keep growing," said Matthew Tiller, national research manager at real estate agency LJ Hooker.

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"It is expected that the Australian dollar will go down a little bit further, and that will make it more attractive for Chinese investors to invest more in real estate."

Property prices, particularly in Sydney, Australia's most populous city, have been on a tear, fuelled by record low interest rates, strong investor appetite and limited supply of housing stock after years of under-investment.

Sydney house prices have jumped 15 per cent in the past 12 months, compared with a 5-year return of 6.6 per cent, says property monitoring group CoreLogic.

The A$12.4 billion of Chinese funds invested in Australian real estate in the year ending June 2014 was 17 per cent of the approved foreign investment of A$74.5 billion in the sector.

Australia limits foreigners to buying new residential properties, but a parliamentary inquiry last year found widespread abuse of the system.

To cool property prices, the government in February said it would charge fees to foreign nationals buying homes and fine those breaking foreign investment laws.

Last month, Australian Treasurer Joe Hockey ordered the Chinese owner of a A$39-million Sydney mansion to sell up within 90 days, saying it was bought illegally.

"We already have significant laws in the country and they should be policed. We don't need further laws," said Justin Brown, an official of global real estate agency CBRE, who was part of the parliamentary inquiry.

Sydney and Melbourne, home to a third of Australia's population of 23.6 million, ranked third and sixth among the world's least affordable places to buy a home, US urban planning researcher Demographia said.

The United States had total approvals for A$17.5 billion, with real estate accounting for A$6 billion. However, the United States and neighbouring New Zealand have higher thresholds for notifying the FIRB.