China’s Property Crisis Reverberates in Australia’s Housing Market - Property Inc

China’s Property Crisis Reverberates in Australia’s Housing Market

Australia’s economy is not immune to global financial disruptions, as indicated by the ongoing tumult in China’s property sector. While this crisis, spearheaded by the potential collapse of China’s major property developer Evergrande, casts shadows of concern on the global financial landscape, its implications for the Australian housing market offer a unique perspective.

According to a recent article by David Chau, China’s property market is grappling with a “sharp deterioration” which has been identified by the Reserve Bank of Australia (RBA) as a major risk. The RBA cautions that the troubles in China’s property sector could trigger a global economic slowdown, softer commodity prices, and curtailed “Chinese imports of Australian goods and services.”

Evergrande, once a pillar in China’s real estate realm, now faces intense scrutiny. Allegations of criminal conduct against its executives, missed debt deadlines, and its founder Hui Ka Yan’s detainment illuminate the company’s precarious situation. Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, highlighted the stern approach of the Chinese government, saying, “It shows the government is trying to take a very harsh stance on some of those who have profited for many years from the over-leveraging of the company.”

Yet, while Evergrande’s saga unfolds, its ripples are being felt across the Pacific. Another article by Michael Smith paints a brighter picture for Australia’s housing market. Propelled by a surge in confidence, national house prices in Australia have rebounded, climbing 0.38% in September and a total of 4.31% this year. PropTrack senior economist Eleanor Creagh attributes this surge to “record levels of net overseas migration, tight rental markets and a housing shortage.”

Given China’s property sector’s downturn and the prospect of reduced profitability, Rabobank’s global strategist Michael Every speculates that Chinese investors may redirect their sights towards Australian real estate. “If you can’t make any money on property in China… you’re going to get more and more Chinese investors looking around and thinking, ‘where can we still make 10 per cent a year for doing nothing?'”, Every said, suggesting that cities like Sydney and Melbourne could become even more attractive for investments, potentially making them “even more unaffordable than they already are.”

In sum, while financial tremors in China’s real estate sector have caused concern globally, the Australian housing market is, ironically, drawing strength from the situation. Yet, as always, global economic shifts come with a mix of opportunities and challenges.

References:

“How a ‘sharp deterioration’ in China’s property market and potential collapse of Evergrande could affect Australia’s economy” by David Chau ↩ https://www.abc.net.au/news/2023-10-11/china-property-market-downturn-evergrande-australian-economy/102953810 

“How China’s property crisis is helping fuel Australia’s” by Michael Smith ↩ https://www.sbs.com.au/news/article/property-market-rebound-house-prices-are-on-the-rise-but-not-in-one-major-city/oxri50sni 

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