China's crumbling property market no deterrent to Australian real estate investment
As China’s own property market slipped into freefall, Australia has entrenched itself as the top destination for Chinese property buyers.
China’s property market may be in freefall but it hasn’t stopped Chinese property investors from setting their sights on Australian real estate.
The world’s most heavily indebted property developer, China’ Evergrande Group, on Friday (18 August, Australian time) filed for bankruptcy protection in the United States, with Australia not immune from the economic fallout.
China’s biggest property developer, Country Garden, which is now that country’s biggest developer, is also on the brink of collapse with debts totalling $11 billion.
The Australian dollar has dropped sharply in response to concerns about the Chinese property market contagion spreading globally through financial markets.
But Chinese buyers are now turning their attention to overseas property, with the lower Aussie dollar only offering more incentive to yuan-rich buyers.
Australia is the world’s top destination for Chinese property buyers for the second year in a row, ahead of Canada, the UK, US and Thailand.
Education is the great lure, providing an investment boon to suburbs located near high-demand universities.
Immigration is soaring, with 70,000 expats from China expected to arrive in Australia by 2025, among a total migration intake of 1,000,000. Chinese citizens also are the world’s most numerous participants in golden visa programs, making up 46 per cent of approved applicants in Australia.
Chinese demand for Australian real estate will also increase proportionately.
The Chinese buyers have the savings to invest. In the ﬁrst nine months of 2022 alone, Chinese savings deposits soared in value by RMB 26.3 trillion (A$5.28 trillion), according to oﬃcial statistics.
Much of the demand is the result of suppressed activity during the Covid lockdowns.
Chinese overseas property buying fell by anything from 30 per cent to more than 50 per cent during the pandemic, depending on the destination market.
Despite record levels of savings, China’s domestic market is not as strong as in previous years, with international markets being the biggest beneficiary of this shift in focus.
Growth of contract sales at the top 100 developers was 57 per cent lower in May and 47 per cent lower in April than in the same months of 2019. Even in top-tier cities markets are slowing. Secondary home markets see a glut of eager sellers despite plummeting sales.
Juwai IQI Group CEO Kashif Ansari said Australian property was major target of Chinese investors.
“Chinese investors are drawn to real estate investment as an easily understood category that is expected to provide price appreciation and dependable long-term foreign currency income that is uncorrelated with the Chinese economic cycle.
“In this era of higher interest rates, Chinese investors with access to ready capital have an advantage over local buyers,” he said.
China’s property woes, Australian implications
China’s property sector remains in turmoil, with major developers failing to complete housing projects, triggering protests and mortgage boycotts from homebuyers.
There are fears that problems in the country’s property sector could spread to other parts of China’s economy as growth slows. Since the sector’s debt crisis unfolded in mid-2021, companies accounting for 40 per cent of Chinese home sales have defaulted.
While the rest of the world is combatting high inflation, China is facing the prospect of deflation.
As with Evergrande, any collapse of Country Garden would have catastrophic repercussions for the Chinese financial system and economy and implications for Australian and global economies.
The Australian dollar this week responded to the news by falling to its lowest level in nine months, while the share market also shed value.
China’s property sector accounts for around 40 per cent of the nation’s steel demand, with subsequent impact on Australia’s key iron ore and coal.
Rio Tinto’s chairman Dominic Barton recently commented on China’s economy, which was unusual given Chinalco, a Chinese state-owned corporation, is Rio’s biggest shareholder.
“There are also challenges, as you mentioned,” he told Bloomberg Television.
“There is a big real estate issue.”