China’s Property Crisis Boosts Australian Real Estate; Melbourne Faces “Sluggish” Growth

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The ongoing property crisis in China, primarily caused by an economic slowdown, COVID-19 restrictions, and rising debt among developers, is inadvertently fueling Australia’s real estate market. Meanwhile, Melbourne’s property market witnesses a slowdown in growth.

The Root of China’s Real Estate Woes

China’s once-booming property sector, a cornerstone of its economy for years, is deep in a crisis. This market turbulence threatens to ripple across global economies, including Australia. Michael Smith, in his report for the Australian Financial Review, highlights the plight of a young Chinese couple, Zhang, and his fiancee. They are struggling to find affordable housing in Shanghai, emphasizing that “Although China has had an economic slowdown in recent years, the property price in Shanghai hasn’t decreased.”

Property, which was once seen as a mandatory purchase for newlyweds in China, is now becoming a luxury many can’t afford due to “affordability and more onerous bank lending rules,” leading many to rent for longer durations. Confidence in the property market has been significantly impacted by the economic consequences of the pandemic, with a significant number of developers failing to complete projects, leaving buyers in dire straits. “In some extreme cases, homeowners have been forced to live in unfinished apartment blocks without running water or lifts,” Smith adds.

Jack Guo, an agent with Lianjia Property in Shanghai, indicated a shift in buying patterns, stating, “Three years ago, property investors were always waiting and watching but currently only married couples and families with school-age children are buying houses.”

Impacts on Australia’s Property Market

China’s property slump, as detailed by Smith, has unexpected consequences for overseas housing markets, particularly Australia. Australian real estate firm Juwai IQI reports a surge in interest from Chinese investors in overseas markets, with Australia topping the list. Smith mentions, “Real estate firm Juwai IQI says Australia now tops the list of overseas markets such as Canada, the United Kingdom and the United States for Chinese investors.” Factors like the pandemic and President Xi Jinping’s “common prosperity” policies are driving this trend.

Australia is expected to welcome around 70,000 new migrants from China in the coming two years. However, for local residents like Zhang, there is a concern that these inflows and government measures might inadvertently boost property prices further.

Melbourne’s Property Situation

While the Chinese property crisis indirectly propels growth in many parts of Australia, Melbourne’s growth seems to be in a lull. According to Sky News, Melbourne’s property prices have experienced “sluggish” growth this year. REA Group economist Angus Moore provides insights on Melbourne’s market, saying the property prices were “basically flat” in July. But he also adds a hopeful note: “Importantly, prices aren’t falling, so it is a change from what we were seeing last year.”

Final Thoughts

China’s property downturn and its subsequent effects on international markets, like Australia, are a testament to the interconnectedness of global economies. As one giant struggles, its tremors are felt elsewhere. Melbourne, meanwhile, holds steady, giving hope for a potential rebound in the future.

References:

“How China’s property crisis is helping fuel Australia’s,” by Michael Smith, The Australian Financial Review. https://www.afr.com/world/asia/can-china-solve-its-property-crisis-20230802-p5dtbb 

“Melbourne witnessing ‘sluggish’ growth in property prices,” by Sky News. https://www.skynews.com.au/business/real-estate/melbourne-witnessing-sluggish-growth-in-property-prices/video/d30d611319af49db4ba0dbb4f52b492d