Caixin
Nov 05, 2018 07:03 PM
BUSINESS & TECH

Chinese Investors Lose Millions in Australian Property Deals

Real estate agents say Chinese consider Australia, particularly Sydney, to be a safe place to invest in property. Photo: James Brickwood
Real estate agents say Chinese consider Australia, particularly Sydney, to be a safe place to invest in property. Photo: James Brickwood

(AFR) — John Wang had so much faith in property sales agency Ausin Group that he handed over A$765,000 to buy his third Australian apartment without asking for a receipt.

“I had already bought two properties through Ausin and I had such deep trust in them that I didn’t even bother to get a receipt when I paid the full amount on the third property,” said Wang, a retired businessman from Shanghai.

His blind faith in the property sales agent backfired earlier this year when the company’s China business collapsed, resulting in 130 failed residential property settlements in Australia. More than 100 Chinese property investors like Wang have lost millions of dollars in deposits and payments for off-the-plan houses and apartments in Sydney, Melbourne and Brisbane.

Mary Wu, a retired business executive from Shanghai, recalls being on a bus in Melbourne in March this year when she impulsively bought a 280-square-meter (3,014-square-foot) house in the Victorian capital. She was in Australia on a trip organized by Ausin for potential investors at the time and was so impressed with the company’s sales pitch she did not hesitate.

Her payment of $490,000 went through several months later, but she says the developer never received the money. Wu had already bought a house in Brisbane though the same agent two years earlier without any problems.

Like many of the Chinese investors using an intermediary to pour savings into off-the-plan homes on Australia’s eastern seaboard, she was impressed by the “high-quality” Ausin sales staff who were “handsome and with good manners” and excelled in maintaining long-term relationships with their cashed-up clients. “The Ausin properties seemed like a great wealth management product, which guaranteed a five-year lease and 10% return,” she says.

Wang and Wu were two of a number of investors the Australian Financial Review met at a cafe in downtown Shanghai on the condition their real names would not be published.

The group of mainly middle-class retirees in their 50s and 60s all had similar stories. Many were convinced by their children who had studied or were living overseas that Australia was a safe haven for their capital. Sold on Australia’s reputation for good weather, a safe environment and robust legal system, many saw cities such as Sydney and Melbourne as safer and cheaper alternatives to the skyrocketing housing prices in Shanghai or Beijing.

Unexpected problems

What they did not count on was the intermediary they had used for years going bankrupt. The Financial Review first broke news of the agency’s collapse in August. Ausin’s China business, which is a separate entity to Ausin Australia, was accused of misappropriating tens of millions of dollars in settlement and deposits for homes acquired in Sydney, Melbourne and Brisbane.

However, the problems at Ausin run deeper than the failure of a single property agency. The investors’ stories show how the combination of China’s tight controls on capital outflows and regulatory changes in Australia which forced banks to restrict home loans to foreign investors ended disastrously.

“This incident shows Chinese investors should be aware of foreign property policy changes,” says Yan Yuejin, an analyst at real estate service provider E-House China R&D Institute. “They should not invest blindly in overseas property markets just because of the rosy investment returns, otherwise you can lose your deposit.

“This incident also reflects China does not have strong supervision on overseas property agencies,” he says.

It has also emerged that Ausin investors in China are divided over how to handle the matter. The group the Financial Review met with believe the only way to get their money back is to help Harry Jin, the man in charge of running Ausin’s China offices, resurrect the business. Another group of investors is planning legal action against Ausin Group’s Australian operation, which is still solvent.

The group of investors, who all own multiple properties in Australia and China, say one reason they turned to Ausin was because the agency had found a way to circumvent China’s capital outflow restrictions, which mean an individual is restricted from sending more than the equivalent of $50,000 out of the country. They said they would pay Ausin in the Chinese currency, which is known as the yuan or the renminbi, and it would find its way to Australia.

Wang said he bought his first apartment in Australia in 2012. He followed this up by purchasing a 110-square-meter apartment for A$885,000 in 2013 and a 72-square-meter apartment for A$765,000 in 2016. The payment for the third deal never went through because new restrictions on mortgages for foreign investors meant he could no longer get a loan for that deal. Instead, Wang said he paid Ausin the full amount for the property late last year.

“I never leave an Ausin exhibition empty-handed,” Wang says. “There is no point for me to buy properties in Shanghai as my only child is living in Australia and Ausin’s property investment plan suited me well.”

The investors who met with the Financial Review were well-dressed, well-educated with an international perspective and some even had background in financial advice. They say they have talked to a number of lawyers in Australia who advised them they were unlikely to win if they took legal action.

They say one buyer in Shanghai had lost 15 million yuan ($2.2 million) alone, while another four in their group, which communicates via social media, had lost over 10 million yuan. The biggest concentration of investors were in Shanghai where the losses amounted to more than 100 million yuan followed by Shenzhen which was between 80-90 million yuan. Investors from Beijing lost an estimated 70 million yuan.

They estimate the entire amount lost by property investors through Ausin is 358 million yuan. This includes around 28 million from the so-called “tourism clients” who lost the smaller deposits they paid for trips to Australia through Ausin to view properties.

Rapid expansion to blame

The investors say they have not given up hope of seeing their money again if Ausin China downsizes and gets back on its feet. They blame the company’s collapse on mismanagement and rapid expansion rather than criminal activity. Many have personally met with Jin to talk about the situation. Jin did not respond to requests for a comment.

After launching in 2008, Ausin’s expansion accelerated from 2016 as the number of staff increased to 600. At the same time banks in Australia started to put restrictions on foreign lenders as regulators sought to cool the overheated property market and Australian banks denied some overseas lending projects. In April 2016, the major Australian banks stopped lending to foreign investors in the residential property market.

Rather than being turned off the Australian property market, the Chinese property investors say they would invest again if they got their money back. Many are unhappy with the Chinese government’s tight restrictions on foreign currency transfers, which is why many used an intermediary like Ausin rather than buying directly. They said Ausin was one of the few agents that could support payments in yuan, the Chinese currency.

“Although the government has strict control of capital transfer and China has risk of financial slowdown there is still a lot of opportunity and still big opportunities for foreign property market. A lot of Chinese are still interested in making investments in overseas properties,” one of the investors said.

Legal action

A breakaway group of investors from the Ausin collapse, who all keep in touch via online chat groups, have a different approach to their loss. Chinese businessman Robin Qu, who claims to represent more than 100 investors, wants to take legal action against Ausin Group to try and recover the money.

“This is swindling. I will fight this all the way,” he said. Qu said he had taken his case to a court in Shenzhen, a city in southern China. “It might be hard for us to get our money back but it would send a strong signal to investors in the future.”

The investors the Financial Review met with said this breakaway group mainly invested “tourist clients” who paid 200,000 yuan deposits each to take a property buying tour to Australia but did not lose their entire settlement. A third investor from Suzhou, in the coastal province of Jiangsu, said she visited Australia earlier this year to visit the properties under development. “It was like a thunderstorm. It hit very suddenly. I believe it is all because of mismanagement, not swindling.”

Ausin Australia and Group led by Joseph Zaja said in August that the matter had been reported to the Australian police and had severed ties with Jin, whose business is Shenzhen Ausin Investment Consulting and uses the Ausin name under a license.

When the Financial Review visited Ausin’s officers in Shanghai, security and front desk staff said it was no longer open. The Financial Review was not allowed up to the 43rd floor where it was based.

One of the security staff stationed outside the building said: “The company always looked a bit dodgy to me,” noting there were protests outside the building by investors several months earlier. Staff have all been sent home and the power and water was cut off.

Property agents in China said they were not worried it was a widespread issue which would dampen the appetite for Australian property.

Carrie Law, chief executive of online property group Juawi.com, said Chinese buyer demand for Australian property continued to grow this year after falling in 2017.

“Wealthy Chinese are interested in two things: wealth preservation and lifestyle. Sydney is perfect for both. Sydney is a stable market with good long-term growth prospects. It’s a safe harbor, both physically and financially.”

This story was originally published in The Australian Financial Review.

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