Australia's new investment laws to drive away Chinese home buyers

"At the moment people are purchasing property in Australia so that they can study here, or send their children here to study."

Currently, more than 20 percent of all international students coming into Australia are from China.

Lee fears this number could fall sharply, dragging other parts of the economy down with it.

"The government think this fee is a small amount, but on the other side it could turn into a big loss," she said.

"We're going to see a loss of overseas buyers and investors."

Platter said the market for Chinese buyers in the lower range will drop dramatically if the current plan goes ahead.

"In the half million to A$2 million range ($390,000 to $1.56 million), an A$5,000 up to A$15,000 fee ($3,900 to $11,700), regardless or not if you get the property is a big disincentive.

"Hopefully the government can take some of the advice it has been given and make some improvements to its proposals."

On Sunday, Federal Assistant Treasurer Josh Frydenberg appeared to do just that, telling the Australian Broadcasting Corporation that the government was still working out the finer details of the changes, with the most likely outcome resulting in a refund of the application fee for bidders who were unsuccessful.

This would be better news for investors who were initially under the impression that application fees would be non-refundable, but the application process -- and its attendant red tape -- could still take its toll on would-be investor numbers.

So while the government has listened to the growing voice of discontent among the Australian electorate -- that Asian buyers are invading suburban real estate markets and forcing up house prices -- the move to placate them could result in the unintended consequence of damaging the economy.