Sydney homes aren't so attractive to Chinese investors this year

[SYDNEY] Chinese demand for Australian housing is cooling as both nations' governments tighten the screws on investment activity.

Foreigners will account for 18.1 per cent of residential buyers in Sydney's state of New South Wales by the end of March - a 5.5 percentage point drop in just one year, according to the latest Australia & New Zealand Banking Group Ltd and Property Council sentiment survey. The share in Victoria state - home to Melbourne - will fall 4.2 percentage points in the same period.

Sales are down thanks to stricter enforcement of Chinese capital controls and tighter access to Australian finance for foreign buyers, three-quarters of which the Reserve Bank of Australia estimates are from China.

Last year, New South Wales doubled stamp duty levies for foreign investors, while Victoria has imposed a vacancy tax on unoccupied properties from this year.

Cooler demand could prove a fillip for Australians hunting for a home to buy. With scores of apartments due to come on line this year and next, prices are likely to stabilise or even drop, improving affordability for groups like first-time buyers.

Still, weaker interest could also hurt developers needing to shift apartments quickly to meet their financial commitments.

Even as their interest in Australian residential property wanes, foreigners are investing heavily in Victoria's commercial real estate. Foreign buyers of offices in the state will comprise 22.6 per cent of deals in March, up 6.9 per centage points in 15 months, according to the report.

The report surveyed 1,374 property developers, consultants, contractors, managers and some government organisations.

BLOOMBERG