Pain Before Gain: REAL ESTATE Impact of Dropping Foreign Student Numbers

SYDNEY (10 November 2020) — Juwai IQI is releasing today this summary of Chinese residential real estate buyer activity related to Education in Australia, adding its own data and insights to the new report from the Mitchell Institute, Coronavirus, and international students.

Juwai IQI Executive Chairman Georg Chmiel said: “It will be pain before gain. Student numbers are likely to keep falling and vacancies to keep rising until mid-2021. Then, we believe student numbers will climb to higher than their 2019 peak.

“This is the current situation. Chinese buyer enquiries are down to just half the level of a year ago. These numbers parallel to drop in student visas. There is still great demand and 135,000 students are enrolled and ‘working from home,’ so to speak, overseas and could quickly return to Australia as soon as borders open.

“Education is a major factor that drives Chinese purposes of homes here. Students occupy housing while studying, go on after graduation to take jobs here and form new households, and often draw parents and other family members to the country over time.

Advice for Property Investors

“Investors who already own property and are suffering may want to hang in there for another six or 12 months. Student numbers will begin climbing again, your rents will go back up, and your investment will regain lost value.

“If you’re looking to take advantage of this dip in the market, then the best opportunity is most likely to purchase in the hardest-hit suburbs from an owner who can no longer afford to carry the property with the lower prevailing rents. Look for investments with more space, outdoor space, and nearby parks and outdoor amenities. Even after the pandemic, buyers and renters will be seeking more liveable property. It takes a brave investor to purchase when the market is hurting, but it can be worthwhile.

Student Visa Applications

“Applications for student visas for individuals who are outside Australia are approximately 80–90% below their level at this time in 2019. Students who are not already in Australia represent the future of the educational sector. These new students have to come to Australia to start the course of studies to keep total numbers up as existing students finish up their own educations.

“The good news is that there are 135,000 international students, mostly Chinese, enrolled in Australia right now but studying from their home countries. This large cohort of students could quickly return to Australia when travel is again possible and help the real estate market bounce back in the hardest-hit areas. Chinese account for 62% of international students who are enrolled but cannot get into the country.

What’s the Worst Case (and the Best)?

“If student numbers continue to drop, that would be devastating for the property market in key suburbs, but I’d like to emphasize that is unlikely. Scientists are making remarkable progress on vaccines all over the world. Australia this month already began producing vaccines, China this month has started exporting them, and in the United States, Pfizer has reported a 90% success rate for its new vaccine.

“In the best and most likely case, the country will reopen in mid-2021. Student numbers will begin to climb again in the second half towards and beyond their 2019 peak.

“Safety and educational quality are the two key factors that motivate students when they choose where in the world to study. Our clients in China, India, Malaysia, and other parts of Asia tell us that they would feel safer traveling to Australia to study in 2021 and 2022 than the United States or the United Kingdom. It’s true that the world’s top few universities are in the US and the UK. But most of the hundreds of thousands of international students to travel around the world go to second and third-tier institutions. Australia has a large number of very, very good universities in the second tier. Australian universities appeal to students who want the best possible Education despite missing out on Harvard or Oxford.

“By 2025, Australia is likely to increase its share of international students and particularly of Chinese students at the expense of the US, the UK, and Canada.

“Right now, the suburbs where students tend to live are facing hard times, with rents and property values plummeting. The longer the travel restrictions are in place, the more the real estate market will suffer. If travel restrictions remain in place through July next year, there could be 50% fewer students in Australia.

“How long this lasts depends on how long the travel bans persist. Australia could wait for the vaccines or open additional travel bubbles like it has done with New Zealand to enable students from no-case countries to come to study.

Impact on Sydney Real Estate Market

“New South Wales has lost 79,719 international students as of 25 October, or more than one-third of the prior total in the state. The impact on the real estate market is spread across several suburbs. New South Wales has lost the most international students because it has a higher share of Chinese students, who were the first to be prevented from coming into the country earlier this year.

“Waterloo has lost the most international students, and vacancy rates there have increased by 3.10% over the past year. The Sydney, Haymarket, and The Rocks area has lost the second-most students and had the biggest vacancy increase: 8.5%. In Redfern and Chippendale, the vacancy rate has soared by 6.3%. In Kingsford, the vacancy rate has climbed by 5.7%.

Impact on Melbourne Real Estate Market

“Victoria has lost 66,855 international students, which is 36% of the prior total and the largest decline of any state or territory. In Melbourne, the real estate crisis is mainly focused on the CBD. Before the pandemic, international students made up more than 30% of residents in some suburbs.

“The suburbs have lost most students are Melbourne, Clayton, and Carlton. The Docklands face the biggest rental crisis, with vacancy rates 14.2% higher than a year ago. In Southbank, vacancy rates are 12.7% higher than a year ago. In Melbourne, 7.6% higher than a year ago. In Malvern East, vacancy rates are 70% higher than a year ago.

Impact on Queensland and ACT

“Queensland has lost 37,333 international students, which is 34% of the prior total.

“The Australian Capital Territory has lost 5505 international students or 42% of the prior total. That’s the highest share lost of any state or territory in the country. Canberra has lost the highest percentage of students, again because of the high reliance on Chinese students in the ACT.

$32 Billion of Economic Value

“Remember that Education is one of our largest exports in Australia. It generates $32 billion of benefits for Australia every year. It is also one of the most labour-intensive exports, meaning it spreads jobs across the economy in a way that mining does not. Precisely 57%, or about AU$21.4 billion, per year in international education revenue is actually spent on goods and services in the wider economy.

“Some 800,000 Chinese students study each year in the US, UK, Australia, Canada, and New Zealand. Their total economic contribution to those countries is estimated at US$113.3 billion.”

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