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Chinese Restrictions On Foreign Investments To Affect Australia

The recent crackdown on foreign real estate investments by the Chinese government is likely impact several countries including Australia. China's State Council issued sector specific restrictions last week on overseas investments where property investments in foreign countries have been classified as restricted.

The new regulations are in keeping with China’s current drive to stem the outward flow of capital as it seeks to stabilize the yuan. Chinese investment into the Australian real estate market has continued to grow with every passing year. This new rule is expected to have a significant impact on Australia’s real estate market.

In a statement Stephen Ciobo, Australia’s Trade Minister said

The impact will be widely felt across a number of countries in which Chinese SOEs (state owned enterprises) and private businesses invest. It is not for the Australian government or indeed any government to dictate to the Chinese which sectors they should or shouldn't be allowed to invest in, pursuant to their domestically imposed capital controls

Chinese companies have been among the biggest investors in Australia’s real estate sector. According to a report by a real estate consulting firm Knight Frank around 38 percent of residential development sites were purchased by Chinese firms in 2016, costing $2.4 billion.

Ciobo noted that it was important for the Australian government to be pragmatic about the policy change and ensure that investments come in from other countries. He added that Australia currently has a diversified portfolio which will help in dealing with the change well.

Ciobo pointed out that United States is currently the biggest single investor, and other nations like Singapore and the United Kingdom had strong pipelines in terms of investments.

According to data from the Foreign Investment Review Board, while the U.S. is the largest direct investment investor via stocks, China has been the largest investor of new money for several years now. FIRB’s latest annual report shows that Chinese investment into the country was worth $47.3 billion in 2016.

The restrictions on outbound investment are already taking effect. The amount of Chinese investment into Australian real estate projects has dropped by 69 percent in the first half of 2017 as compared with the same period last year. A Cushman & Wakefield report has revealed that Singapore has become the top source of foreign capital into Australian commercial real estate market replacing China.

The report has forecasted that despite the slowdown in Chinese investment, the Australian commercial real estate market will see an investment of around $30 billion by the end of the year.

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