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The eastern suburbs of Sydney and the inner-city areas of Melbourne – both high to middle-income havens – are showing signs of cracking. As we discussed recently, while most of the <a target="_blank" href="https://www.propertyobserver.com.au/economy/australia-s-middle-income-time-bomb-real-estate-agents-included-will-take-unemployment-to-above-6-gottliebsen/2012091756629">escalating middle-income unemployment is hidden</a>, some clear surface signs are emerging.
Sydney's eastern suburbs has one of the highest proportion of people employed in the finance and professional services sectors in the country – around 80% of households. Research by Brian Redican and Macquarie Bank shows that in this white-collar middle-class ghetto unemployment is rising rapidly while participation in the labour force has fallen sharply – down from 70.9% two years ago to 67.8%.
In late 2011, unemployment along the lower north shore of Sydney had not recorded the same deterioration as the eastern suburbs. But now it is following the same trend.
Last year, while there was rising unemployment in Sydney's affluent areas, it was not obvious in Melbourne. But in the last six months unemployment in the inner suburbs of Melbourne has risen, although it is still substantially below the level reached in 2009-10.
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Other states do not have the same clearly defined demography.
And so those retrenched last year appear to have started to show up in unemployment. The ex-middle income avalanche will follow next year.
Nevertheless, those that have escaped the axe and remain part of middle-income Australia are starting to feel more confident. In addition, very often couples are helped because only one partner has lost their job.
An important part of middle-income Australia is the small business community. Large areas, particularly in manufacturing and construction, are bleeding. Retail is holding up remarkably well.
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For many years Morgan Research has been critical of the ABS labour calculation figures. Morgan figures use a different basis of calculation. In recent months Morgan has suddenly been picking up the middle Australia unemployed and the margin between Morgan unemployment estimates and the statistician has blown out.
 
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In time the statistician will catch up.
In theory, the suffering by those in middle-income Australia should help the Coalition. But once you are no longer earning a "middle income" a whole new dynamic develops.
You have seen what state governments have done and you fear that the Coalition will do the same thing should it gain power in Canberra. That will make it even harder for you to gain employment.
Whereas while you were still employed you might have been a Coalition supporter, now in self-interest you may be voting for Julia Gillard.
This article first appeared on <a target="_blank" href="https://www.businessspectator.com.au/" rel="nofollow">Business Spectator</a>.
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Unemployment on the rise in Melbourne and Sydney prestige suburbs: Gottliebsen

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With the help of Brian Redican of Macquarie Bank, today I want to attempt an answer to the question that is troubling a great many Australians: Why is official unemployment around 5.1% when all around middle income Australia we see retrenchments?
I must warn that the answers reveal that the low unemployment masks a looming decline in middle-class Australia and an unfortunate transformation of our social fabric. You will need to understand this if middle Australia dominates your customer base. But in addition, the answers will also not help Tony Abbott and the Coalition.
Because of the importance of this commentary I will publish it over two days.
Let's start with an apparent complete absurdity. One of the areas which showed increased employment in the latest labour statistics was media. Yet it was a period of dramatic retrenchments in most sectors of the media.
But media is not alone. As Redican points out in his remarkable research paper Invisible Unemployment 11, employment in industries like finance, telecommunications and real estate have also been rising dramatically and, although in the latest statistics they slipped fractionally, employment in these industries remains at very high levels. Yet, like media, finance, telecommunications and real estate are the very industries where some of the deepest middle-class labour cuts are being made.
In the words of the late Julius Sumner Miller, once we understand 'why this is so' we are on the way to understanding what is happening to our society and what the inevitable next events will be.
We need to start with how the statistician calculates unemployment.
Each month a survey is sent to 28,000 households, who are asked if they were employed (for at least one hour); not employed but actively looking for work (and ready to work); or not employed and didn't look for work in the previous week. These three categories determine whether someone is employed, unemployed or not in the labour force.
Once a person completes the survey they are surveyed for eight consecutive months. In most years it works well but in the current environment it can seriously delay unveiling a growing trend.
Before looking at what's happening in our 'high employing' industries there are two understandable demographic events taking place which depress unemployment.
First, Redican explains that as people hit the ages of 55 and then 60 and 65, the proportion remaining in the workforce tends to drop sharply (i.e. the participation rate declines). And because so many more people are now entering these age groups, Macquarie estimates that there were more than 50,000 people leaving the workforce in 2012, compared to around 20,000 a decade ago.
This simply means that the economy can generate 30,000 fewer jobs each year and still see no increase in the unemployment rate. That process is nearing its peak as the baby boomers move through to retirement.
At the youth end, the fact that more people are staying in education has also resulted in a big decline in the participation rate. The youth unemployment rate is currently almost 17%, but if the participation rate hadn't fallen it would be over 20%. Again this depresses unemployment levels but, of course, eventually these students will graduate and try and join the workforce. If they can't get work they will be unemployed.
These two 'abnormalities' can be easily understood. What's happening to boost employment in media, finance, telecommunications and real estate is harder to fathom. But let's take a hypothetic newspaper sub-editor as representative of retrenched bankers, investment bankers, telecommunications and real estate executives/sales people – all of whom are going through a similar nightmare.
Retrenched, they arrive home with a pile of retrenchment cash so they are not eligible for Centrelink. The sub-editor will start up as a 'freelancer', the banker, real estate or telecommunications executive might use the term 'consultant'. They are looking for work but they see themselves as 'employed'. All four industries attract people who are 'working' in this way.
Of course, other retrenched people take some time off. Either way the labour survey does not pick them up as 'unemployed'. But with living costs high, eventually the money runs out because the "charade jobs" rarely generate more than token amounts of income.
It's a middle-income time bomb ticking below the surface, which in 2013 is going to erupt, taking unemployment beyond 6% and causing interest rates to fall much more sharply than most expect. It will reduce the ranks of the middle class.
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/">Business Spectator.</a>
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Australia's middle-income time bomb will take unemployment to above 6%, real estate agents included

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What happened to Darrell Lea could happen to Australia. It made the same mistakes Australia is in danger of making. Darrell Lea could never adapt to the fact that the good times had gone and that the old boom-time strategies had to be changed.
Former BHP Billiton chief Don Argus, writing in The Australian today, warns than Australia will face the same problem if China slows. Like Darrell Lea, Australia is basing its finances on a continuation of boom times.
Accordingly, Darrell Lea represents a warning to governments and companies that booms do not last forever and if you enshrine boom-time strategies then come the tough times you suffer badly.
More directly, the collapse of Darrell Lea is a further alert to all retailers and manufacturers: Re-engineer your business to cater for modern trends and improve productivity or you will die. The lesson applies to owners, managers and workers.
In the retail sector, Darrell Lea is no isolated example. We have seen a string of retailers get into trouble including big brands like Myer and David Jones, plus Billabong. Appliance retailers have been particularly hard hit.
Manufacturers and service industries have the same story.
Darrell Lea stores still look almost exactly as I knew them as a child. Yet they don’t have the same magic, even to my grandchildren. Darrell Lea confectionery is not as cheap as supermarket confectionary and many of us now buy former Darrell Lea type purchases via the upmarket brands.
Darrell Lea is in high rent areas and the confectionary margins don’t allow it. A reader says he knew they were in strife when they changed the layers of licorice in the licorice allsorts. I suspect that the company did not invest in the latest manufacturing equipment at a time when more and more confectionary is being made overseas. In other words, productivity did not keep up. Of course it would have been very expensive to substantially curtail local manufacturing because of retrenchment benefits but it would have lowered Darrell Lea retail prices closer to those of competitors.
And if you have an extensive franchise chain, you need to advertise. Darrell Lea did not have the money.
I don’t know how to solve the Darrell Lea problem but I know some of the ingredients in the solution will be more online retailing; lower production costs via importing; a different product range; lower rents and much smarter marketing.
And if you think about it, many of those ingredients are also part of the solution for other enterprises and they are part of the Australian solution. Here at Business Spectator we have been alerting Australia that the lower productivity we are experiencing is not just about unions, IR laws and infrastructure – it's also about bad management. Treasury has woken up to this.
The Telstra Productivity Survey shows that less than one in three enterprises and even fewer government bodies can be bothered measuring productivity (<a target="_blank" href="https://www.businessspectator.com.au/bs.nsf/article/telstra-productivity-survey-australian-economy-it-pd20120323-sn7up?opendocument">Waking up to productivity</a>, March 28). I hope that someone can find a formula to restore Darrell Lea. Eighty-five year old businesses are something special but no matter how old the business, unless its re-engineered to the modern environment, it is vulnerable.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator.</a>
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What happened to Darrell Lea could happen to Australia: Gottliebsen

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Last night’s rise in the Australian dollar against the greenback, at a time when commodities were easing and the American dollar was rising, delivers us a series of important messages.
And those messages will have particular significance to the property market and may help explain the strange goings on behind David Jones' recent suitor.
We all understand that we are attracting a share of the safe haven money that wants lesser exposure to the euro and usually already has over-exposure to the US dollar. That safe haven money is being boosted by the fact that Australian interest rates are higher than the US.
Of course it is dangerous money, because if we encounter a significant fall in mineral prices it would flee the country, causing considerable disruption to our banking system and pulling down the dollar.
Of more long-term significance is the fact the stable dollar is contributing to a boost in overseas interest in our residential and commercial property markets. Australia’s largest apartment developer, Harry Triguboff, says that the strong buying by the Chinese (<a target="_blank" href="https://www.businessspectator.com.au/bs.nsf/Article/building-construction-property-banks-lending-China-pd20120418-TFSTQ?opendocument">The Bondi house that China built</a>, April 18) is being multiplied by interest from the Middle East, India and other parts of Asia. Inner-city areas are attracting the most attention, although in Melbourne's inner-city apartments there appears to be over supply.
Over the weekend a friend of mine was trying to buy a house worth just under $2 million in Brisbane. A Singapore investor flew over and paid what was required. The house had been in the market for two months and had failed to sell at an earlier auction. The money flow is increasing.
The residential buying tends to boost the value of inner-city apartments and houses. It is also pushing Australian family buyers into outer suburbs. Apartment developers like Harry Triguboff want the planning, zoning and other rules eased to lift the supply of Sydney inner-city apartments to cater for the demand.
The overseas property buying is locked in here so this form of 'safe haven' buying is different to the interest bearing securities slush money coming out here. But property buying raises more controversy.
Almost certainly the overseas buying will spread to areas of the commercial market, which have a far wider array of products than the inner-city residential markets.
And so we are going to see strange events take place as overseas investment houses test whether property is available and then try to match that property against the desires of their buyers. When prominent public companies like David Jones become involved in these exploration adventures it can be very disturbing to the stock market. Insider trading allegations will become part of the story.
Switzerland will warn us that if you are a safe haven currency for a long period of time few young people can be employed in export industries. Switzerland is priced out of the market.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>. 
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Stable Australian dollar contributing to a boost in Australian residential and commercial property: Gottliebsen

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Be ready for a surge in new dwelling starts lead by New South Wales, Victoria and, of course, mining-boosted Western Australia. This revival will boost Australian economic numbers, which may delay further interest rate cuts.
When the figures are calculated we are going to see a big improvement in Australian housing affordability, which will underpin the housing resurgence. And in both NSW and Victoria state government actions will drive sales.
NSW is doubling its first-home buyers’ grant from October 1 and then dropping it 14 months later. It is also providing a grant for the purchase of properties under $650,000. From October these actions will boost the market – which means it will be wobbly for four months.
NSW is also taking steps to try and break the bureaucratic obstacles that curb development. My builder friends tell me the politicians are doing their best but currently there are too many bureaucrats standing in the way. Eventually the politicians will win, particularly as the size of the public service is being reduced.
Victoria is going the other way and will boost figures for the next six months. Victoria is going to end its first-home buyers’ grant on June 30 (the federal grant remains). That action is currently bringing forward a volley of new home buyers anxious to sign up by June 30. Victoria is also releasing new areas of land and it hopes the extra supply will keep land prices down to offset the withdrawal of the grant. I suspect that in 2013 the grant may need to be restored, but that’s down the track.
These grants come at a time when there has been a fall in land values, which increases affordability, and builders are presenting house-and-land packages with much smaller and cheaper houses than was the case a few years ago.
Add to these developments lower interest rates, and there is a big rise in affordability. Whereas the Australian mining and large construction industries have seen big rises in the cost of building, partly a result of bad management and union action, in home building the efficient independent contracting system has been very effective in maintaining and improving productivity rates so prices have not exploded. In some cases prices have fallen.
The non-mining Australia depends on both retail and housing activity. Retail is tough, but at least for the next year there will be a boost in housing.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator.</a>
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Improved affordability will underpin housing market resurgence: Gottliebsen

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When we look abroad we see all sorts of warning signs but we should not forget that the Australian domestic economy is getting a substantial stimulus. Julia Gillard and Wayne Swan are once again spraying money at lower-income earners, and they will spend it.  Australians are highly leveraged into the housing market so they are very responsive to falls in interest rates. This is a big help to middle-class Australia who are being hit by Canberra.  Not only have official rates come down but also there are clear Reserve Bank signals of further falls. Moreover the dollar has slipped, which will give some light to struggling service and manufacturing industries. From this week’s comment by Australia’s largest apartment developer Harry Triguboff it is clear that local buyers have returned to the apartment market. Harry Triguboff is clearly talking his book when he says the market has risen, but in the past when the market has fallen Triguboff has been just as frank so his track record shows when he calls a move you can believe it. The simple fact is that banks may be tardy lending to developers but they will lend to consumers for dwellings. And the apartment market is being boosted by mainland Chinese buying which is a sure sign that while the current indications in China suggest a downturn there is still great momentum and Chinese investors have money spend in Australia. Harry Triguboff believes the way to kick start non-mining Australia is to step up migration. I think that’s a great idea but I know there are many with a different point of view.  There is no doubt that building dwellings is an important part of non-mining Australia. The Reserve Bank was nervous about having strong dwelling activity at the same time as a mining boom but the limitations on bank finance mean that we are not going to see a boom. The greatest threat to the dwelling market is the large number of potential layoffs in the system and the fact that 47% of Australians are frightened about their job.  We will not escape if the Greek crisis blows up but the signs of life in the Australian dwelling market give hope that if Europe can hold it together and China minimises its growth rate decline we will come through in reasonable shape. A dollar fall will help.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator.</a>
 
 
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Signs of life in Australia's housing market could provide fresh stimulus to the economy: Gottliebsen

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The world banking system is about to be tested once again by another European crisis because politicians and central bankers underestimated the power of people. And here in Australia we have a version of the ‘Greek game’ being played under the surface.
In Europe whether they be Greek, French or Spanish, 21st-century Europeans will only suffer German imposed austerity for a limited period. The Greek crisis will be the trigger for the euro to be used by fewer countries. Bankers will suffer big losses because they underestimated people power and did not understand that in long term you can’t have a common currency operating in vastly different economies.
The Greek crisis gains the headlines but deep down there is a global consumer nervousness sweeping the Western world. Australian consumers are as nervous about the future as those in Europe or the US. Among the major developed countries around half of consumers feel they are in financial trouble or not financially secure.
Fascinatingly, Chinese consumers feel the most secure. Enlarge the graph below and you will be fascinated by the trends that emerge.
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Australians, along with Germans, share the ‘honour’ of having the biggest rise in the number of consumers who feel they are in financial trouble or not financially secure. In Australia the number rose a whopping 11% from 36 to 47%.
Australians are affected by the European crisis because it boosts the cost of our wholesale overseas borrowing by banks. But we also have our version of the Greek disease. Like the Greeks, we allowed our worker productivity to fall dramatically and we then were handed a high dollar courtesy of the mining investment boom. (The Greeks got a high Euro). But then our Canberra crazies dreamed up a carbon tax to further boost the cost of Australian goods and services and then sprayed money to lower income people while squeezing middle income Australia. (Federal Budget 2012: Ripping into middle Australia, May 8). Just as the Greek politicians are being taught by their people, so will Australian politicians who do silly things be taught a lesson.
This lack of job security is causing a dramatic change in Australian spending habits and I think the change is going to be with us for the medium term so businesses better get used to it.
For example the percentage of Australian consumers saying they will spend less on discretionary items in the next year increased from 47% in 2011 to 50% in 2012. This is higher than in the US (46%), the UK (47%) and about level of the average of the major European economies surveyed.
In other words Australians are saving.
But they are also changing the way they are spending and are increasingly seeking and expecting special offers. They are using the internet to compare prices and are increasingly shopping overseas.
I have taken out the graph of Australian internet shopping as a reminder to all those who own shopping centres – your world is being turned upside down so you had better change your ways including lowering exorbitant rents. This particularly applies to those aiming at higher income consumer markets.
Just as a batch of new politicians will not be able to ease the Greek misery, so this switch to the internet is going to gather even more momentum. Here is the graph.
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Footnote: The Boston Consulting Group’s annual Consumer Sentiment Survey was conducted in April and covered 15,000 consumers in 16 countries. The survey included more than 1,400 consumers in Australia.
 
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/">Business Spectator.</a>
 
 
 
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Australian consumers are as nervous as Greeks about their economic future: Gottliebsen

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In about 21 days middle-income Australians will suddenly discover the full extent of the blows that have been reigned down on them in the 2012-13 budget.  I have always believed that the carefully crafted government attack on middle-income Australia, which was also evident in the 2011-12 budget, is a key, but unstated reason why Julia Gillard is on the nose with big chunks of the electorate. And they have done it again.  The budget documents show that middle-income Australia will have $1.26 billion ripped out of their pockets in 2012-13 by the means testing of private health insurance subsidies. The taxman plans to write to Australia’s middle class and inform them of their fate in about three weeks. In theory the middle class can abandon private health cover, but if they do their Medicare levy will skyrocket so most will stay in private cover, especially given the poor state of public health facilities in many areas.  According to the budget, for a single person the private health subsidy starts dropping when they earn just $84,000 and by the time they get to an income of $130,000 it’s all gone. For families, the figure doubles so it is single middle-income Australia who will be the biggest contributors to the $1.26 billion middle class impost.  The carbon tax will rip around $7.7 billion (including accrued income) out of Australian households and companies, mainly via higher power charges. Lower income people will be more than compensated but the middle class pays close to the full carbon tax, which will be included in their expected increase of 38% in power prices over the next years. (In the vicinity of 7 to 10% of the rise in carbon taxing). In the schoolyard, parents who have combined income below $112,000 with two children will be celebrating the kids' bonuses of $820 for a secondary student and $410 for primary school students - it’s a carbon tax/MRRT dividend. Children whose parents are in the middle class get nothing. The same applies to various family allowances. The middle class will have $370 million extracted from its pocket over the next three years as a result of changes to their medical expense claims, and those with large amounts on deposit will forego $795 million by the decision not to proceed with the 50% tax discount on interest income. In income taxes, the tax free threshold jumps from $6,000 to $18,200, but after that the next $18,800 is taxed at 19% (previously 15%), and between $37,000 and $80,000 the tax take rises from 30 to 32.5%.  Welcome to middle income Australia. You just keep paying.  Many people in middle income Australia have been concentrating on getting their mortgages under control ,but they are often well below where they want to be in superannuation savings with balances under $500,000. Part of the reason for this has been the poor sharemarkets.  They were going to be allowed to put an additional $25,000 (total $50,000) into superannuation in 2012-13 and be taxed at 15%. It’s been deferred for two years, so in 2012-13 they can only contribute $25,000. That deferral raises $580 million in 2012-13 and $730 million in 2013-14.  When it comes to the 2013-14 and 2014-15 budgets, the Treasurer may find that the mineral resources tax has raised nothing like the $4 billion that they are forecasting, assuming the sharemarket outlook for commodity prices is correct.  So the government of the day will be scrambling for money and abandonment of the additional $25,000 will be almost certain. Wayne Swan believes his surplus budget will lower interest rates. But much of the rise in expenditures has merely been deferred – it’s not really a cut – and it’s anticipated that income will keep steaming ahead by about 10% a year.  Yet two of the biggest contributors to income – the carbon tax and the claimed mineral resources tax revenue – are both measures that the Opposition has pledged to drop.  So this is not a sustainable surplus and should not affect interest rates. Those in the middle class with mortgages will get little or no relief from the budget.
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/">Business Spectator.</a>
 
 
 
 
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Federal budget 2012 rips into middle-income Australians' pockets: Robert Gottliebsen

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Self-managed super fund owners have started to take their money out of banks and invest it in the share market, so the interest rate reduction will not be nearly as stimulatory as it would have been had rates been cut much earlier. What is happening in our banking system is part of a global pattern of events. There is a similar version of the Australian phenomena taking place elsewhere in the world, which is reducing the stimulation normally created by lower interest rates.  I hope the Reserve Bank has cottoned on to these new developments.  Conventionally when the Reserve Bank lowers interest rates it encourages business to borrow by lowering their interest burden. Housing, which is one of the more sensitive interest rate markets, receives a big boost. This effect will still operate but its impact will be lessened by the effect on the bank funding base. In the past decade there was unlimited credit available for Australian lending because our banks could borrow whatever they wanted on the overseas wholesale markets at low rates of interest. In the last two or three years that market has effectively closed down at least twice and has also become very expensive because of the problems in Europe. Accordingly our banks are now seeking to attract more and more local deposits. And so whereas in times gone by, local deposits could be as low as 40% of bank funding, now they are nudging 60% and most Australian banks are looking to take local deposits to 70 to 80% of their loan book.  One of the biggest contributors to bank deposits has been self-managed superannuation funds, with fund owners that have relished the idea of receiving a 6% return (and often much more) with minimal risk. But banks have now lowered their deposit rates to around the 5.5% level and once they did that self-managed fund owners started to look elsewhere. As a result, self-managed funds have been withdrawing from the bank deposit market and investing their money in hybrids or high-yielding shares.  Self-managed fund administrator Multiport (a subsidiary of AMP), has surveyed 1800 funds managing $1.4 billion and found that cash held in the self-managed funds slumped from 27% of portfolios in the December quarter to 22.9% in the March 2012 quarter. Most of that money went to the sharemarket, which includes hybrids. Let’s assume that interest rates are cut another half a per cent in May-June and that flows into deposit rates. Even more money will flow out of bank deposits into the sharemarket. To replace that money banks could theoretically go back to overseas markets to borrow but that option is no longer on the table. So they will have to curb their lending or bid up for deposits. As it happens the big fall in business confidence that has been isolated by Dunn and Bradstreet is limiting demand for business lending, particularly in south eastern states and the job insecurity so created will keep a lid on housing demand. But if lower interest rates were to stimulate demand markedly then banks would have to lift their deposit rates to woo back the money which would flow into lending rates.  This vicious circle will curb the stimulatory effect of lower interest rates. And of course outside the super fund movement lower interest rates will curb the spending of people relying on interest-bearing deposits to live.  I must emphasise that Australian interest rates are very high at the moment and they must come down. Just don’t expect a ‘normal’ stimulation. A lower dollar would be much more beneficial. In a strange way a similar effect is being created by the very low interest rates in the US and Europe. Shareholders now want higher dividend payments and are less interested in companies reinvesting their profits. So that curbs the amount of money available for expansion. Australian miners BHP Billiton and Rio Tinto are both being subjected to this pressure.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>.
 
 
 
 
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Beware the rate cut dampeners: Robert Gottliebsen

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In the last three weeks a dramatic event has taken place in the Australian residential apartment market – the mainland Chinese have suddenly increased their “off the plan” buying of inner Sydney, Melbourne and even Brisbane apartments.

The Chinese have been the main buyers of Sydney and Melbourne inner-city apartments for some time (they were not normally Brisbane buyers) but, according to Australia’s largest apartment developer, Harry Triguboff, the level of buying over the last three weeks is without precedent. 
It underlines the fact that substantial parts of the Australian residential market are dependent on what happens in China. Some of this avalanche of Chinese apartment buying will spill over to wider residential markets, although, because so much of it is off the plan, it effects construction activity rather than the pre-owned residential market. There are a substantial number projects in the pipelines, so this buying will avoid what was potentially a glut in all three cities.
It seems that Chinese apartment investors have been quietly told that the Chinese government wants a subdued Chinese apartment market and that they would much prefer the investors to buy offshore (which also helps keep the Chinese currency down).
In recent months there have been substantial swings in Chinese demand for Australian apartments.
Last November, Chinese purchases of inner-Sydney and Melbourne apartments off the plan suddenly halved (<a href="https://www.propertyobserver.com.au/economy/the-sting-in-a-china-property-tale/2011112252489" target="_blank">The sting in a China property tale</a>) – a move which, if it had continued, would have had a major effect on apartment prices. At that time, the severity of the funding squeeze in China greatly increased the risk of Australian purchases by mainland Chinese because their investments in China could be jeopardised.
Over the Christmas break the China credit squeeze eased and in January the Chinese returned to inner-city apartment buying (<a href="https://www.businessspectator.com.au/bs.nsf/Article/China-apartments-Australia-housing-market-RP-Data--pd20120201-R2QQZ?OpenDocument" target="_blank">Will China trigger a property revival?</a>).
Although the Chinese have been the main buyers of inner-city Sydney and Melbourne apartments in the past the buying was spasmodic. Most of the buyers were those educated in Australia.
The latest buying is much more concentrated. Given that the Chinese are buying the apartments off the plan, it means that apartment building is going to be strong well into the future irrespective of the level of Australian interest rates. Nevertheless, the recent lower Australian rates and the expectation of further falls has kindled interest by Australian buyers.
So the market has become much stronger.
In the past the Chinese concentrated their purchases in Sydney and Melbourne, but this time the force of the buying is so much stronger that it has spilled over to Brisbane, where the prices are cheaper. It has not extended to the Gold Coast.
The Chinese find that Australian yields from apartment rents are much higher than those in China.
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/">Business Spectator</a>.
For more insights into Chinese buyers and their effect on the Australian property market, <a target="_blank" href="http://propertyobserver.com.au/ebooks/free-ebook-foreign-investment-in-australian-property-markets">download our free eBook.</a>
 
 
 
 
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Robert Gottliebsen

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