How the Boom Happened

Agree that China trying to stop outflow will not help values but I don't think it is so obvious that China can stem illicit capital outflow, which is estimated to be over 70% of the outflow. Professor at Peking U and Bloomberg View contributer makes the case that doing so would require completely shutting down goods and services trading between China and other countries. However if yuan stabilises than that would reduce outflow naturally, and I don't have a crystal ball to predict when that will happen
Capital Flight Delivers a Verdict on China

 

I wouldnt say gate is closing fast. It is closing but not fast. Nothing moves fast in politics
However yhe rate of growth of chinese investment in bn and gc is increasing...despite the gate closing. Dunno whats exsctly going on, but i suspect that those chinese that woyld have previously considered only syd/mel are now lookinh at bn

 

Look at the factors against the growth of Chinese investment in Australia:

• Depreciating assets in home country. Less money for your asset.
  
• Depreciating currency in home country. Less foreign exchange for investment.
  
• Regulatory hurdles in home country.
• Regulatory hurdles in destination country.
• Transaction Costs (approx 10%) to liquidate the existing asset and procure the foreign asset.
  
• Prospective depreciation of asset in destination country. Sydney’s top five building boom suburbs . E.g Parramatta (hallowed ground) has had an influx of $1,014,202,000 for development 2015-16. These new apartments (by and for foreigners Investment) will appreciate or depreciate ? What will happen to the unit/apartment prices in Parramatta ?
  
• Less control of the asset in the destination country
• Low yields if rented.
  
• Illegal is illegal. What happens when FIRB, ATO catch up ? The money laundering laws are retrospective. Worse if the money has to repatriated to China, when it is known that the transaction was illegal.

Some of these factors did not exist a year back. Time will tell what happens to Chinese investment.

 

I visited Beijing last year. Pollution was so thick I couldn't see the building across the road from where I was staying at times. There's something like 1.6 million people dying from the pollution every year in the country. I think that is a pretty strong driver to invest in a place to live like Australia.

 

when you talk about chinese? are you just implying mainland chinese (from china) or chinese in general - malaysian and singaporean chinese been buying up like dev sites in melbourne like crazy and in sydney as well. There are alot of taiwanese chinese in brisbane though and a lot of them like queensland in general. the thing is with brisbane - they really need more flights in and out of QLD and more prestigious unis to attract the students.

In asia, having a degree is like a status symbol and even more if you said you came from uni of melb or UNSW

 

Apt summary. Which leads to the next question how will the boom end ?

• Tightening credit.
• High interest rates.
• High house prices out of wack with the salaries and providing extremely low yields.
• Reduced foreign investment both in the economy and sector (property)
  
• Receding economy (mining boom, unemployment, aging demographics, loss of manufacturing, car industry, increasing deficit.... ).
• Regulatory uncertainty in the sector (NG/CGT)
  
• Oversupply
• Waiting for clap...of thunder

 

yep uq and qut are the top 2 dogs. They will further solidify their reputations in the coming years..which will attract more.

 

Hi MTR, i'm curious, where did you get this info from (that the boom started in outer western suburbs)? Outer west seems to have had the most growth in the latter half of this boom cycle from what I've seen.

 

some good points there

in perth a lot of the new hotel developments and also purchase of existing large commercial properties are by South East asian Chinese.

mainland Chinese seem to be focusing more on new large apartment developments although obviously there is crossover on both sides.

from memory only fragrance group and frasers are from SEA and doing apartments in perth in a large scale, along with the malaysian group doing the big emu brewery site that will be woodsides new headquarters along with another 2 towers, one hotel and one apartment. mainland Chinese groups are doing some decent sized apartment projects but not to the extent of melbourne and Sydney.

Asian money in australia is nothing new, for a long time the thakral group from singapore, family friends of ours; were the largest hotel owners in australia by number of rooms.

 

I played in this market in early stages and watched it rise, asked investors/agents why it was moving, explained strong immigration.

It started early in the cycle, probably ignored ibecause Blacktown etc not considered desirable. Yes people jumped later when they saw it booming, most areas doubled but then there were other great markets in Syd, perhaps could have thrown a dart and on a winner

 

"The boom" already ended in Western Australia some time ago. Only one factor really impacted the Perth market (in particular) out of the list below:- Receding economy

• Tightening credit.
• High interest rates.
• High house prices out of wack with the salaries and providing extremely low yields.
• Reduced foreign investment both in the economy and sector (property)
  
• Receding economy (mining boom, unemployment, aging demographics, loss of manufacturing, car industry, increasing deficit.... ).
• Regulatory uncertainty in the sector (NG/CGT)
  
• Oversupply
• Waiting for clap...of thunder

 

speaking of perth, personally the softening of the market has been an almost ideal downturn instead of a complete bust like many predicted. sure some really copped it in the luxury markets and areas like Mandurah and over last couple of years the first time developers paying way over the odds have lost a bit too


overall though it's been long, slow and uncomfortable but largely manageable. now we have a scenario where affordability is the best it's been for 15 years or so from a repayments vs wages pov, many people have been building up their savings and there have been a lot of small businesses starting or expanding as people aren't having to spend every spare cent to put a roof on their heads.

overall for the economy in WA the housing slowdown hasn't been catastrophic imo. luckily there have been periods of lots of construction which has kept that industry ticking along through resi, commercial, mining and state govt infrastructure projects.

unfortunately for the chicken Littles I don't think we'llsee perth falling 50%, 15% unemployment and mayhem in the streets so the schadenfreude might not be as prevalent

 

agree
when do you think blue chip areas $1.5m+ move, this market has not moved since 2007? I don't know what to make of it, but thinking loss of those exec mining jobs won't help, still a buyers market

 

It's a bit weird out there. I've been looking a bit in the mt.pleasant applecross area for someone, we bought a site a couple of months ago. it does seem to have increased activity, buyers are seeing the value out there, particularly for massive near new homes.

eg check this out
House in ATTADALE 39 Roberts Road, ATTADALE

sold for i think 4.1m

900 sqm of construction over 3 levels with a lift etc in attadale with river views. imo the previous owners probably spent more than that just on construcrion.

I've also seen some decent activity at opens, it appears to be that land value stuff or new and shiny is doing ok. if youre stuck in the middle you're struggling, at least in mt pleasant /applecross.

nedlands seems to have picked up too although I've only had a brief look a few weeks ago. a top notch property there cant quite be bought as cheaply as before.

 

they now need more flights. Malaysia airlines and Garuda basically cancelled their direct flights to brisbane. Malaysian chinese are the among the biggest consumers of overseas education due to their discrimination at home and indonesia as well.

 

And all this happening as the RBA,keeps the rates on hold for now..

 

it will happen...they will be back

 

I think Malaysia airlines have been in retreat world wide and have suffered a major drop in passenger numbers after the last 2 well known incidents.
Not surprising.

 

Brave call : Unscrambling the downturn omelette and assigning causality to just one rotten egg (receding economy). If so current prices should reflect value for investors. Has Perth bottomed WA - Perth bottoming out? ? If not, other factors might also be at play.

A 13% decline (thanks @willair for the chart) in prices with a transaction cost of 7% and interest rate of 5% on a LVR of 0.8 is already into negative equity (add/subtract a 2-3 % net yield). Pain is real and so is human and corporate behavior.

Capitulation ? IMHO No, not as yet. If Behavioral economics and history is any guide the last bastion of greed(status-quo) will fall to fear.

Disclaimer: I do not follow Perth.

 

I am actively looking to invest in the Perth market now. This means I am looking at properties and attending home opens. It does not appear to me that the Perth market has bottomed out at all. It doesn't seem close to bottoming out. Does that mean the converse to your argument is also true and that if the market has not bottomed out then other factors are not at play?

How so? Prices have not stopped falling yet. I am a Perth property investor and I would not touch a single deal I have looked at in the last 12 months. If I am right and the downturn was caused by a Receding economy and the economy has not bottomed out yet (it hasn't), then how on earth could current prices reflect value for investors?

Name one other factor that caused the downturn in Perth property prices? It's not really that big a call. From your list:-

• Tightening credit. <- downturn started before credit tightened, so no.

• High interest rates. <- interest rates have decreased since the downturn started, so no.

• High house prices out of wack with the salaries and providing extremely low yields. <- in some areas, prices did not recover from the 2007 peak, so it is hard to argue that high prices caused the downturn

• Reduced foreign investment both in the economy and sector (property) <- foreign investment was not a primary driver of the boom, so it is hard to argue that reduced foreign investment has caused the downturn

• Receding economy (mining boom, unemployment, aging demographics, loss of manufacturing, car industry, increasing deficit.... ). <- this is in combination with a slowdown in net population increase

• Regulatory uncertainty in the sector (NG/CGT) <- downturn started before the regulatory uncertainty.

• Oversupply <- some areas are moving into oversupply now but we were in undersupply when the downturn started

• Waiting for clap...of thunder <- did not cause the downturn

Well, thanks for sharing your thoughts on a property market you don't follow

I do follow Perth and the downturn is protracted, severe and not over. The economy is in decline and has not stopped declining. The outlook for the next 12 to 18 months is bleak to say the least. I will certainly be jumping in when the time is right... not now though. Too soon.