Chinese buyers are purchasing the equivalent of 25 per cent of all new homes in NSW and 16 per cent in Victoria, because they are 'cheap' compared with China.
Credit Suisse analyst Hasan Tevfik says the figures, extrapolated from taxes collected from foreign buyers, represents a structural boost that will keep the Australian housing market stronger for longer.
Despite the new taxes and Chinese government restrictions, buyers from China will support the Australian housing market and lessen the severity of a downturn, Mr Tevfik writes in a note Australian Investment Strategy: Shanghai? Shenzhen? Sydney!.
"We believe Aussie housing is around peak cycle and will be a headwind for our economy and corporate profits in the years to come," Mr Tevfik says.
"But the severity of the coming housing downturn is set to be less painful than many fear – dare we say "it could be different this time!"
"Indeed, a major reason why the coming downturn in Aussie housing will be different to those in the past is because of Chinese demand."
The predictions, based on new figures from the state revenue offices of NSW and Victoria - following a freedom of information request - show in detail the demand for property since the two largest states began imposing taxes on foreign buyers.
The $225 million-worth of foreign settlements in NSW in October 2016 rose to more than $450 million in both November and December. In Victoria the value of December settlements was 50 per cent higher than in November.
"There has been a pick-up in both Sydney and Melbourne settlements around the end the year, despite the numerous impediments for foreign buyers," Mr Tevfik wrote.
China's growing wealth - the number of US-dollar millionaires has doubled to 1.6 million since 2010 and is likely to rise to 2.5 million by 2021 - combined with the relative cheapness of Australian residential property to Chinese property and the relatively higher yield, means investors may be "too cautious" about the prospects for stocks exposed to property across the development, building materials, advertising and banking sectors as Chinese demand will stay stronger for longer, he said.
"We forecast Chinese demand for Aussie housing will continue to grow. It will be supported by Chinese wealth creation, attractive valuations (when compared to Tier 1 cities in China) and closer economic integration.
"While Australian housing is at peak cycle, we believe the pace and severity of the coming downturn will be cushioned by Chinese demand."
Mr Tevfik added building materials Adelaide Brighton to Credit Suisse's Long Portfolio, saying the company that had one-third of its business exposed to the housing industry and 35 per cent exposure to domestic infrastructure construction would be strong "for many years to come".
In the report he cited Stockland, Lendlease and Mirvac, along with materials suppliers Boral, Adelaide Brighton, CSR, Dulux, GWA Group and Bluescope Steel, as well as property websites REA Group and Fairfax Media (owner of Domain and publisher of The Australian Financial Review) and banks ANZ, CBA, NAB and Westpac.
"Some of [these] companies... are now pricing in a sharp downturn in price and/or activity," Mr Tevfik wrote. "Investors could be too cautious."
Despite Australia's housing affordability problem - prices in Sydney and Melbourne are among the highest in the world compared with local wages - property remained cheap for Chinese investors, he said.
"From a Chinese investor's perspective, there could be plenty of value in Aussie housing," Mr Tevfirk wrote.
"The median price for a two-bedroom apartment in Shanghai is around $900,000 which is 25 per cent more than the median apartment price in Sydney.
"Also, the gross rental yield in Shanghai is a paltry 1.5 per cent and is less than half the gross rental yield for the equivalent property in Sydney. Yes, our property is expensive when we compare it to our own history, but it is cheap when compared to Chinese property."
In addition, despite the imposition of foreign buyer surcharges in NSW and Victoria, the surcharges were still less than those imposed on foreign buyers in other cities such as Hong Kong and Vancouver, he said.