Will Mainland Chinese Property Implosion Push Our AU Markets Even Further?

Ok ok I know the Central Chinese Government have really really tried their hardest to stop money getting out of China and seeping into the property markets of about a dozen western countries (this one, Australia, being pretty high up that wish-list, too).

But clearly, the money is still getting out and markets are still being ramped up by Chinese investors (Aus, NZ, US, Singapore, Canada, UK, Germany, France, Spain, South Africa etc.).

But I read this piece today.

Here's the smoking gun that China has a huge housing bubble

Some brave little China Property economist bloke has indicated that despite there being no official housing supply/demand/sales price data for mainland China (making it hard to tell if there is a bubble or not because the data isnt reliable), he has devised a simple metric to prove that China's internal property bubble will pop in about two years. Read the article to understand the metric/methodology he has used to predict this outcome.

But my thought/question isnt about that per-se, but moreso, IF he is right and China pops, what impact will this have on our market here in AU? Will it be good, or bad? (or both?)

Those who have been squirreling their funds away into AU will probably escape the china bubble unscathed because they took their wealth here instead. But will a bubble pop there encourage MORE demand for property here, from Chinese, or less?

 

Nice article

But a moderation of the real estate market as 2017 kicks off will likely prompt a rate cut from the People's Bank of China in the second quarter of the year in order to avoid a hard landing, he believes.

But that will only delay the property sector's day of reckoning, Zhang predicts. He reckons that a "severe correction in 2018" looms.

I think the bubble bursting could have 2 main effects

1. Loss of demand from Chinese wanting to invest here, and

2. Some of those that have invested here needing to sell to take back cash to China to pay off debts.

 

Definite possibilities. I think a bad Chinese property market would be bad for Australia's property markets. Less people feeling wealthy so less investment here. Less equity (i'm not sure if people borrow against their homes over there but I assume they can and will).
And as Terry says, if they need to repatriate money back home, any unnecessary/excess assets such as Australian property might end up needing to be sold.

 

There are the macro issues that come into play as well.

A crash in the Chinese property market should see a big decline in construction which would drop the iron ore price further.
If it was big enough, consumption would drop on a whole leading to all commodities dropping in price.
The Chinese would be poorer so we'd get less of them visiting either for tourism or education.
It would also affect everyone in Asia, who also happen to do a lot of trade with Australia as well.

We're so linked to the Chinese economy that things would be rough out here for a while as well.

However, the Chinese have been pulling rabbits out of hats for a while now. Logically, the bubble should have popped ages ago, but it hasn't. It's like Magic.

Maybe the magic will continue....?

 

Also there are many mainland chinese doing large developments in australia and these could be effected as they are relying on offshore financing.

As well there are large numbers of businesses that will be indirectly effected. Real estate agencies will close. Leases broken. Accountants no longer needed. Brokers. Lawyers etc etc

 

Just like the ghost cities in European countries like Spain (there is an episode of top gear where they race some supercars in the empty streets and airports there.)

It is obvious there is a bubble in China, with their massive oversupply of ghost cities that go on for miles and miles. and now they are building massive infrastructure like high speed rails and airports to prop up the construction/steel/property sector.

Why we should worry about China's cooling infrastructure spending

The chinese gov has no choice but to keep expanding credit until a hard landing comes about and everything falls apart. The currency has already been devalued this year and their USA treasury holdings have also been going down to help prop the currency.

But as with all bubbles its impossible to predict when it will fall apart. Numbers wise the effect to GDP of further infrastructure / government stimulus is diminishing per $ spent. But China still has 6%+ of interest rates to go for dropping towards negative and it also has 6%+ GDP to go before it hits 0%

Fever is at its peak now i reckon, look at the FRENZY going on in the larger cities at the moment:
Chinese home buyers storm apartment building amid housing crisis

Smaller tier 3 and 4 cities are already experiencing pretty desolate conditions in their housing markets.
(its a bit like Sydney/Melbs vs Darwin/Perth, two speed)

IMHO the party will go on until the music stops suddenly. Older investors will remember the period towards the end of the 80s and early 90s where the Japanese experienced a similar economic/asset bubble, they were buying up property and businesses all over the world back then, that is until the music stopped. Unfortunately when that happens australia will be hit pretty badly.

-Rinky dinky doo, rinky diddly dee, dooby dooby doo, dibbly dibbly dee-

 

This piece from the Guardian is a MUST read.

Has Vancouver found the solution to a super-heated housing market?

Starts on the Vancouver pandemonium but then quickly looks at other cities. Look at Sydneys indexed position.

But then, maybe we should all be pooring our money into Milan, Italy

The writing is on the wall IMHO. Vancouvers foreign buyer tax (oh come on... lets be honest and call it what it REALLY is, in all Western cities. Lets just call it the 'Chinese Tax'), is 15% and within weeks property rapidly went back to ita real intrinsic median values. They went from 0% to 15% overnight if I'm not mistaken.

Sydneys Chinese tax is at 4% and a few months in. Melbournes just went up to 7% (is it just coincidence that their Chinese tax is the highest and they also have the greatest volume of ghost-towers out of any AU city??), and Brisbane have introduced their own 3% tax too.

These percentages are probably just treated as a 'cost of doing business' but once they swell to the 15%+ mark, I'd say that'd give a Chinese investor a moment of pause/reluctance.

I wonder what London will do? At number #2, they need to act!

 

yep melbourne increasing its tax to 7% is a good move, the banks probably knew things would hit the fan soon and hence suddenly stopped providing loans to foreigners to limit risk.

unless we have tight rules towards foreigners, they will continue to pump our markets up. Australia doesnt have to look far, Singapore also has a foreign buyer tax of 15% and combined with a TDSR(Total Debt Servicing Ratio) in 2013, this has helped to stop the bubbly property market harming locals. This was done to limit the influx of foreign capital from China flooding their property market and has resulted in their property markets slowly going down.

The TDSR is a framework where all financial institutions giving out property loan have to document that it does not exceed 60% of his monthly income(impacts serviceability assessment)
MAS

So I reckon 7% is not gonna slow things down much, especially when things are going up 20%+ year on year, the Chinese will figure they'll still profit 13%+ a year. But 15% might just be the magic number, since it almost negates that 20% gain. A 5% gain a year is just not that sexy...

 

Bad because it may drag Aus into recession. China accounts for 30% of Aus's sales. If China fell, Aus is in big trouble. The marginal Chinese buyer (if that even exists in a full blown China crash) will not offset the 9% unemployment and defaulting local home owners in Aus. Pray China doesn't fall.

A soft landing tho is ok... China is big, but 90% of Aus properties still bought by Aus I would guess. Got to make sure Aussies aren't unemployed first.

 

Bubble pops in Vancouver...

Vancouver’s $1,000-a-Day Home Price Escalation Starts to Stutter

• Sales plunge in city as successive measures dampen sentiment
• Homes taking longer to sell, relisting at lower prices

The graceful six-bedroom house in a Vancouver neighborhood flanking one of Canada’s top universities and a massive park would usually have been met with a slew of offers above its C$4.5 million ($3.4 million) asking price.

That’s if its July listing hadn’t coincided with the week the government announced a 15 percent tax on foreign buyers intended to cool the market. The grey wood-frame house was soon pulled and relisted for C$100,000 less before finally closing seven weeks later at just over C$4 million, 9 percent below its original price.

read more....

 

New here so I haven't figure out how to quote, apologies in advance.

[/QUOTE]
I think the bubble bursting could have 2 main effects

1. Loss of demand from Chinese wanting to invest here, and
True, except a lot of Chinese are already here and have PR hence with no restrict on purchasing whatsoever.

2. Some of those that have invested here needing to sell to take back cash to China to pay off debts.[/QUOTE]
Not necessarily true as the capital restriction is two-way: in any calendar year a Chinese citizen can only get USD 50k out of China or back into China so selling Aussie property won't help much in terms of paying off debt in China.

[/QUOTE]
Older investors will remember the period towards the end of the 80s and early 90s where the Japanese experienced a similar economic/asset bubble, they were buying up property and businesses all over the world back then, that is until the music stopped. [/QUOTE]
China's situation is very different to Japan as China has a significantly larger domestic demand so even property prices in tier 3/4 cities drop it won't affect property prices in tier 1/2 cities.
And I don't think the Plaza Accord will happen to China anytime soon.

 

@Ouchmyknees
read this :
The Chinese economy is heading towards the trainwreck Japan experienced in the late 80s

then read this :
Aging Workers, Slowing Productivity: China’s Changing Demographics

and read this about their banks.
Contagion Risks Rise as China Banks Fund Each Others’ Loans

Not gonna be a pretty picture when it all goes sideways...

The only difference with Japan I reckon was Japan's economic boom brought us great electronic and car brands. Oh and one country is run by COMMIES ;P.

 

China's given us some ultra cheap copies of various cool things

though I can't see how it could be sustainable

 

Don't worry soon enough India will fill the gap.

 

...lol just like when the Japanese left QLD......

 

Or you can take advantage of the oncoming tsunami of offshore buyers and invest in Australian Property Bank as a shareholder or bondholder

The way I figure is if the Chinese are going to drive up the price of property in Australia I may as well take advantage of it selling them "picks and shovels" (for the same reason I'm happy to buy equity positions in USA military vendors even though opposed to military intervention in the middle east).

 

agreed..although I don't think all au cities will be impacted the same. If china falls hard, sydney and Melbourne ( the most reliant on chinese money) will feel the most effects, but will be partly offset by good jobs numbers ( strong local economies) so overall impact may be moderate.
Brisbane will be least affected because its exposure /reliance in chinese supporting its RE is small and its jobs numbers do not rely much on chinese RE..
The rest of the country will feel it more - especially the perth market.

 

Chinese Developers Tumble Most in Five Weeks on Property Curbs

Chinese property shares took their biggest beating in five weeks after authorities in more than a dozen cities imposed restrictions to curb surging prices during a week-long holiday for the financial markets.

Poly Real Estate Group Co. and Beijing Capital Development Co. lost at least 3.9 percent, dragging down a gauge of developers in Shanghai by 2.2 percent at the midday break, the most since Sept. 1. Shanghai’s housing commission announced over the weekend steps including increasing land supply and forbidding price increases in new home pre-sales without approval, as it joined other Chinese cities in a push to ensure the real estate market is stable.

Authorities in both tier 1 and tier 2 Chinese cities such as Nanjing, Shenzhen and Fuzhou have recently announced measures to contain house-price bubbles, including specific restrictions on mortgage and down-payment policies. Home prices started to take off last year after the governments eased curbs on property purchases.

“The plunge is an initial reaction to the property curbs,” said Jingyi Pan, a Singapore-based strategist at IG Asia Pte. “Authorities are keen to tame surging prices, but we are not expecting a tumble as it will not be in their interest. Property share prices may eventually still see a climb, albeit a very slow one.

Read more....

 

Agree, I was at a SMATS event last night and they talked about how there were only 38k FIRB requests in 2015 (25k Chinese) eg....its a drop in the bucket to the rest of the market.