The sting in a China property tale: Robert Gottliebsen
Australia’s largest apartment developer, Harry Triguboff, has confirmed that Chinese buying of inner-Sydney apartments has halved in the last month. The China squeeze on its property market and fears about the level of our dollar are now having a direct effect on the Australian dwelling market.
Triguboff believes that the sharp cutback in Chinese apartment demand will probably reduce apartment prices in Sydney by about 10%, but the prices will not collapse. He believes that a fall in apartment prices will flow on to the whole dwelling market in Sydney.
But what we are looking at is a much bigger squeeze on Australian finance, because as I revealed last week, European banks are now looking to quit their Australian loans (The euro's last-minute print job, November 17).
The Chinese apartment pullback and the European bank withdrawal plus the truly astounding events in Europe – where (in the words of Westpac’s London man James Shugg) the world is watching a train wreck taking place in slow motion – is going to intensify the pressures on the Reserve Bank to reduce interest rates a lot further.
We are not on the front line, but the missiles have reached our shores.
Yesterday I looked at the effect of the European mess plus the China downturn and its possible effect on Australian property and other areas (China triggers the recession alarm, November 22).
Mainland Chinese investors had been almost the sole buyer of Sydney apartments, investing about $2 billion a year and they were major buyers in Melbourne, taking their annual investment rate to about $3 billion. They were seeking to have some of their funds outside of China as a risk hedge.
But there are now much greater liquidity pressures at home and those that bought when when the dollar was around $1.08 are showing a 10% loss. At the moment, there are a great many apartment towers being built in Sydney and to a lesser extent Melbourne, where the mainland Chinese have bought off the plan, usually with a 10 % deposit.
Triguboff says so far all Chinese buyers have honoured their agreements but no one can be sure which way the Chinese will jump if the global crisis intensifies. If they failed to honour their agreements, then apartment prices would almost certainly fall by more than 10%.
On the other hand, lower interest rates and the lift in rents are starting to rekindle some Australian buying of apartments, which will be helped by the lower prices.
But Triguboff fears that the Australian banks may be on the way to engineering their own train crash, albeit nothing anywhere near as serious as the European disaster. Australian banks – having been the main driver of higher house and, to some extent, apartment prices – are once again lowering the values of dwellings in determining how much they will lend. While the Chinese were buying apartments that did not matter, although it has contributed to a large number of unsold houses in most capitals.
If Australians can’t get bank finance to buy apartments and the Chinese withdrawal intensifies, then we will see even greater pressure on dwelling prices. This is not a forecast, but when banks push prices up via their lending policies and then push them down with different policies, then they have only themselves to blame for any losses.
Of course, in the apartment market local councils and state governments have taken actions that have increased the price of apartments by about 15%. If the councils and other bodies made the rules for approvals straightforward and made their building requirements fit into economic construction methods and market demand, then apartment costs would fall (Apartment antics hurt Australia, October 26). This would enable Australians to buy them, but might affect the values of existing apartments.
There will be many twists in this tale, some of them rather unpleasant.
This article originally appeared on Business Spectator.
