Property investors from mainland China have been a big part of Australia’s transition away from the mining boom since the end of 2011, yet they’ve had a rough ride in the court of public opinion.
First we were told that Chinese millionaires were flouting foreign ownership laws by buying established homes and pushing property prices out of reach of everyday Aussies.
Then last week we were warned about the opposite problem – that if ‘legal’ Chinese buyers of brand-new properties disappear, so too will the apartment construction boom and the property price growth they were funding.
The apartment market is already in trouble, with AMP economist Shane Oliver suggesting prices could fall by 15 to 20 per cent in the next couple of years, particularly in ‘hot spots’ of highest building activity.
Mr Oliver went as far as to tell the Australian Financial Review: “People are better off waiting until the dust settles to see if there are any opportunities to buy apartments with a lower price tag.”
Those comments followed a similar warning from analysts at Credit Suisse Securities Asia last week.
They observed: “Issues of affordability and household debt are overextending Australia’s real estate bubble, which is being held aloft by foreign capital. Tightening bank credit standards are the likely catalyst for a correction.
“Our base case has the crisis starting with cheap apartments and later spreading to other flats in close proximity. This is likely to lead to defaults among small developers and a sharp contraction in apartment construction. However, it is unlikely to result in sharp price declines in other regions.”
Scaring buyers away?
To put the icing on that rather flat cake, Australia’s biggest apartment developer, Meriton Group’s Harry Triguboff, warned this week that we are scaring Chinese money away.
He told news.com.au: “There are a lot of Chinese now that are not settling [on off the plan purchases] … the numbers are very significant. Now the people are running around trying to find alternate finance.”
As reported last month by The New Daily, offshore investors have come under pressure from higher stamp duties levied by cash-strapped states, new capital gains tax requirements, tighter loan-to-valuation ratios from Australian banks, and the air of xenophobia created by the resurrection of Pauline Hanson’s political career.
While there is no doubt a racist fringe who think of all ethnic Chinese bidders as ‘foreigners’, the real issue is not race – it’s residency and citizenship.
Whether it’s Chinese Australians, Greek Australians, Anglo Australians, Vietnamese Australians or Sudanese Australians, the entire country is suffering the effects of a two-decades-long credit boom that has elevated the cost of housing and until recently failed to stimulate dwelling supply.
That’s the problem Australian housing policy must address.
Don’t mention the ‘R’ word
The CLSA analysts quoted above did suggest that an apartment crash, under their worst-case scenario “would result in dwelling prices falling sharply in all areas, eventually leading to a recession”.
That would not help Australians afford homes because in a recession many won’t have incomes to buy all that ‘affordable’ housing stock.
On the other hand, there is no need to replace all the Chinese buyers fleeing the apartment sector – despite suggestions from Mr Triguboff that the government do just that by giving more tax breaks to local property investors, and allowing young Australians to use their super savings to invest in property.
Both those would pump prices higher, but would ravage the federal budget and super system. Extraordinary suggestions.
The ‘China crisis’ identified by Mr Triguboff is really about pots of restless capital attracted to what I have previously called ‘Casino Australia’ – the land where prices only ever go up and everyone’s a winner.
The extended winning streak was created by perverse tax incentives to local investors, super-low interests rates, and the mis-selling of Australia’s post-mining boom prospects to foreign investors.
The fact that foreign investors are waking up to all that before many Australians is the most worrying part of all.