Why commercial property investors don't need to worry about China

Last week, The Australian newspaper invited three commercial property experts to respond to the following question: If China's growth story begins to peter out, what will be the impact on Australia's commercial property market?

Those experts included Greg Marr (managing director of DTZ), Tony Crabb (research head of Savills), together with me (as chief executive of Properly Edge Australia).

You can read all three responses, which appeared in Saturday's Weekend Australian. What I've included here below is my contribution to that analysis.

Don’t be misled by the doom-and-gloom merchants peddling a story along the following lines.

"The European crisis is causing sluggish recovery for the US. And together, they are adversely affecting China — as is shown by its annual growth declining from 12.5% per annum in 2008 to its current level of around 9% per annum.

"As Australia depends heavily on China, our economy and therefore commercial property market are at risk. Furthermore, banks are likely to be a squeezed for funds to lend."

Australia's only faint connection with the North Atlantic problems is one of mindset — being when stock markets fall, we generally feel far less optimistic. But you actually need to look a little deeper than that.

This has been deliberately orchestrated to regain control of inflation.

In 2008, China's 12.5% per annum growth contained 3% to 4% of exports to Western countries. Today, its still healthy growth of 9% per annum is being driven by its latest five-year plan — focusing upon internal infrastructure and increased domestic demand for its own output.

Fortunately for Australia, China still requires our natural resources in abundance to underpin its massive domestic expansion plans, over the next decade.

Therefore, the likely impact of the current North Atlantic problems on China will be minimal — likewise for the Australian economy and commercial property.

Australian banks' wholesale (offshore) funding needs are determined by the amount they lend and the deposits they can arise from the domestic market.

Since 2008, the banks have reduced their dependence upon offshore funding by a third — now providing only 20% of their funding needs. In turn, they have raised (from 40% to 50%) their contribution from domestic deposits.

Therefore, with lower credit growth and increased domestic deposits, banks will need to draw far less upon offshore funding over the next 12 months.

Whenever people are confused, they tend to do nothing. But don't allow yourself to be distracted by short-term thinking.

Australia's underlying fundamentals for commercial property and the economy are strong. Supply of office and industrial space is quickly falling through strong demand.

And now is the time to you set yourself up for the next five to six years of stable growth.

Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.