After months of delay, it finally seems that the China Australia Free Trade Agreement (ChAFTA) is going to pass the Senate with big implications for the property industry.
The breakthrough has occurred because the Labor Party caucus has signalled it will approve the agreement in return for three modest changes designed to safeguard Australian jobs from imported Chinese labour, despite many unions believing the changes are not sufficient.
Trade Minister Andrew Robb has stated in response that Labor’s changes appear to meet the government’s requirements that there should be nothing that singles out China or changes the substance of the agreement.
“We’ll have genuine discussions with the Labor party and hopefully it will identify a pathway to get these things through the parliament,” Robb said.
“At first glance, the things they are asking for are either providing greater clarity or they provide greater confidence around existing measures.”
China’s Minister of Commerce Dr Gao Hucheng, former Prime Minister Tony Abbott and Trade and Investment Minister Andrew Robb after the signing of China Australia Free Trade Agreement
This means the deal is likely to be passed by the Senate and come into force before the end of the year.
So what does this mean for the property industry?
Industry experts believe ChAFTA will promote further growth of Chinese investment in Australia, in particular by raising the screening threshold at which investments in non-sensitive sectors by companies from China are considered by the Foreign Investment Review Board (FIRB).
The threshold will be raised from $248 million to $1078 million, putting most acquisitions beyond scrutiny.
The exception is agriculture where, in line with the promise made by the Coalition at the last election, the government will be able to screen investment proposals by Chinese investors for agricultural land valued from $15 million and agribusiness from $53 million.
According to Property Council of Australia Chief Executive Ken Morrison, the significant raising of the threshold in non-sensitive sectors will encourage more investment “in any case”.
“It’s certainly a good thing,” he told The Australian Financial Review when the deal was announced.
“It will create opportunities for Australian property developers and property service providers. The amount of construction underway in China presents a huge medium-term opportunity.”
This opinion was echoed more recently by real estate agent Savills.
“Businesses need to get ready for the FTA and get over there and take advantage of this unprecedented access to the Chinese market,” Tony Crabb, national head of research at Savills Australia said.
Savills forecast in its Insight paper, ‘China: At Home, Abroad and in Australia’ that China’s investment appetite for Australian property would accelerate, with the investment underpinned by the fact that many of China’s investors had strong business and family ties with Australia.
Investment has already been very strong, with a raft of new Chinese-backed developments such as property and entertainment giant Dalian Wanda Group’s $1 billion Jewel project on the Gold Coast
He added that we need to ensure the opportunities are bilateral.
While the Australian market has enjoyed the influx of Chinese investment in the property sector from a range of sources, the FTA is likely to see a surge in the number of Australian companies purchasing property entitlements over Chinese commercial assets.
Savills highlights public-private partnerships including health care, education and infrastructure, and opportunities in aged care, social housing, logistics and urban rejuvenation as key opportunities for Australian business.
The use of land in China can be bought from the government on a long-term lease – typically 40 to 50 years for commercial property and 70 years for residential.
The deal is also a boon for providers of construction and engineering services
China will provide new market access to Australian companies undertaking joint construction projects with Chinese counterparts in Shanghai.
Australian companies will be exempt from business scope restrictions, allowing them to undertake a wider range of commercially meaningful projects.
Australian providers will also benefit from new Chinese commitments allowing them to offer a range of services, including through subsidiaries based in China that can be wholly Australian-owned.
This will apply to software implementation; research and development; services incidental to manufacturing; building cleaning; printing of packaging materials; translation and interpretation services; real estate; and environmental services.
According to the Property Council of Australia, the deal also reduces barriers to labour mobility and migration rules for large-scale infrastructure projects.
Investment Facilitation Arrangements (IFAs), which will operate within the framework of Australia’s existing visa system, will provide greater flexibility for companies to respond to unique economic and labour market challenges.
IFAs will be available for large infrastructure projects above $150 million, strengthening investment in this key area and leading to the creation of jobs and increased economic prosperity.