Chinese investors remain the largest foreign owners of Australian residential property, but new official data suggests their long-standing dominance is beginning to weaken as thousands of homes leave their portfolios while Japanese investment accelerates.

Figures from the Australian Taxation Office’s latest Register of Foreign Ownership of Australian Assets show that investors based in mainland China owned 22,272 Australian residential properties as of 30 June 2025. Although that still represents more than half of all foreign-owned homes nationwide, it marks a decline from the previous year and signals a notable shift in overseas investment patterns.

At the same time, investors based in Japan recorded the fastest growth among major foreign buyers, increasing their Australian residential property holdings by around 46 per cent over the same period. That surge has elevated Japan to Australia’s fifth-largest foreign residential property owner, overtaking both the United Kingdom and the United States.

Chinese investors remain dominant but are selling more homes

The ATO data shows Chinese investors continue to hold the largest share of foreign-owned residential property in Australia, accounting for approximately 55 per cent of all foreign-owned homes.

However, their holdings declined from 23,550 properties a year earlier to 22,272 by the end of the 2024–25 financial year, representing a reduction of 1,278 dwellings, or about 5.4 per cent. Hong Kong-based investors also reduced their holdings, falling from 3,486 to 3,396 properties during the same period.

Separate Foreign Investment Review Board approval data indicates more than 1,600 applications from buyers based in mainland China and Hong Kong were approved during the financial year. Taken together, analysts estimate that close to 2,800 properties were likely sold by investors from those markets after allowing for new purchases.

Despite the reduction among Chinese owners, total foreign ownership of Australian residential property increased slightly overall, rising from 40,177 homes to 40,460 during the year. That suggests investors from other countries are increasingly filling the gap.

Japanese investment gathers momentum

The most striking change in the latest figures was the rapid increase in Japanese investment.

Japanese investors expanded their holdings from 1,168 properties to 1,711 in just one year, making Japan one of the fastest-growing sources of foreign residential investment in Australia. Singapore also recorded modest growth to 1,978 properties, while Malaysia’s holdings eased slightly to 1,795.

Economists believe the trend reflects broader investment patterns rather than simply individual property purchases.

Ray White Group chief economist Nerida Conisbee said large Japanese corporations have been increasing their exposure to Australia’s property sector, including investments in major residential construction companies. That institutional presence may encourage additional residential investment over time.

One example frequently cited is Sumitomo Forestry’s increased investment in Metricon, Australia’s largest home builder, which reinforced growing Japanese confidence in Australia’s long-term housing market.

China’s property downturn is reshaping investment decisions

Property experts believe much of the decline in Chinese ownership is linked to ongoing economic challenges in China rather than deteriorating confidence in Australia.

China’s residential property market has experienced several years of falling prices, oversupply and financial distress among major developers. Those conditions have reduced domestic wealth, constrained access to finance and encouraged some investors to liquidate overseas assets.

Real Estate Institute of Australia chief executive Jacob Caine said the sales were likely influenced by China’s property market difficulties, which have significantly weakened confidence among investors.

“Like it or loathe it, Australia’s housing ecosystem relies significantly on foreign cash,” Mr Caine said, warning that reduced foreign investment could ultimately affect rental housing supply.

Ms Conisbee similarly argued that Chinese investors continue to look internationally, but tax settings and investment conditions increasingly influence where they choose to deploy their capital. She suggested other destinations offering more favourable taxation or investment incentives may now appear more attractive than Australia for some buyers.

Implications for Australia’s rental market

The reduction in Chinese-owned properties has sparked debate over whether the trend represents good news for aspiring home buyers or a warning sign for Australia’s rental market.

If former investment properties are purchased by owner-occupiers, particularly first-home buyers, the shift could improve home ownership opportunities.

However, many analysts believe a significant proportion of those properties may have been high-value dwellings or apartments that are less accessible to first-home buyers because of price or location.

Mr Caine warned that if investment properties leave the rental pool without being replaced by newly constructed housing, rental shortages could become even more pronounced in cities already experiencing historically low vacancy rates.

Where foreign-owned homes are located

The latest register shows Victoria continues to host the largest number of foreign-owned residential properties.

• Victoria: 16,403 properties
• New South Wales: 9,198 properties
• Queensland: 8,465 properties

Victoria nevertheless recorded a decline in foreign-owned housing compared with the previous year, reflecting broader investor caution and ongoing policy changes affecting landlords.

Australia’s foreign investment rules remain restrictive

Foreign investment in Australian residential real estate is already tightly regulated.

Most non-resident foreign buyers are generally restricted to purchasing newly built dwellings or vacant land intended for development, rather than established homes. Purchases typically require approval under Australia’s foreign investment framework and are monitored through the Register of Foreign Ownership of Australian Assets administered by the Australian Taxation Office.

The policy aims to encourage additional housing supply while limiting direct competition with Australian buyers for existing homes.

New sources of overseas capital emerging

While Chinese investment appears to be moderating, property agencies report growing interest from several other international markets.

Industry participants have identified Vietnam, India, Japan and investors from the Middle East as increasingly important sources of capital for Australia’s residential sector. Population growth, relatively stable institutions and long-term housing demand continue to make Australia attractive despite higher taxes and tighter regulation than some competing markets.

Some analysts also believe Brisbane and Perth could attract increasing overseas interest because housing remains comparatively more affordable than Sydney and Melbourne while offering stronger rental yields.

What the shift means for Australia’s housing market

The latest figures do not suggest foreign investment is disappearing from Australia’s housing market. Instead, they point to a changing mix of international investors.

Chinese buyers continue to dominate by a considerable margin, but the combination of economic uncertainty at home, changing global investment preferences and Australia’s evolving regulatory environment appears to be reducing their relative influence.

Meanwhile, stronger participation from Japanese investors demonstrates that overseas confidence in Australian residential property remains intact, even as the source of that capital evolves.

For policymakers, developers and renters, the key question will be whether new international investment can continue supporting housing construction and rental supply as one of Australia’s traditional sources of foreign capital gradually scales back its presence.