Soaring house prices are vulnerable to a sharp downturn that would damage the local economy if Chinese buyers retreat from residential property in Australia, a former top US Federal Reserve official has warned.
Nellie Liang, who recently visited Sydney and shared her thoughts on financial stability research with the Reserve Bank of Australia, told The Australian Financial Review policymakers were right to be "really concerned" about high house prices and household debt that was elevated by international standards.
Amid signs that Chinese businesses and people are being forced to move offshore money back home, the recently retired head of the Fed's financial stability division said a "trigger" for a real estate price collapse could be a reversal in international capital flows.
"The problem with high house prices and high household debt is it leads to unsustainable debt burdens if house prices fall," Dr Liang said in Washington.
"Even without debt, when you have the outsiders buying properties, if the outside money pulls out and prices fall, there's innocent bystanders who took on debt and end up underwater, which could lead to defaults.
"Twenty per cent moves in house prices isn't crazy anymore."
Beijing's regulatory crackdown on capital outflows is starting to cause some Chinese money to exit Australia.
China's Wanda Group, under pressure from Beijing to crimp its offshore expansion and reduce debt, last week confirmed it was selling majority stakes in its Sydney apartments and hotel development and Gold Coast apartments project.
Other Chinse entities and individuals are facing demands to unwind and halt offshore investments in a bid to stop capital flight and bolster the value of the yuan.
National Australia Bank says property experts estimate foreign acquirers in the combined established and new property markets represented 17 per cent of all apartment buyers and 11 per cent of house buyers in the June quarter.
Anecdotally, Chinese represent the biggest share of foreign buyers.
Surging residential real estate values in Sydney and Melbourne have been underpinned by record low interest rates, limited new land supply, high consumer debt levels and an influx of foreign buyers, particularly from China.
Chinese property buyers are turning away from Australian housing as efforts by regulators in both countries to slow investment begin to bite.
Chinese buyers, who make up about 80 per cent of all foreign property purchases in Australia, have grown wary after being hit by Beijing's tightened capital controls, local banks restricting lending and growing fears of an over-supply in the capital city apartment market.
The drop-off in Chinese demand for Australian property marks a noticeable shift from just a year ago when buyers from the mainland were seen to be dominating apartment purchases in many inner city suburbs.
"It was just 12 months ago that Australia was the hottest thing at Chinese property exhibitions," said Scott Kirchner, a Shanghai-based director of Beller Group, a real estate agency.
"Now Australian developers are not up here pushing projects and Chinese agents have no appetite for Australian property."
That downbeat assessment is mirrored by figures released from Chinese-language property portal Juwai.com, which showed searches on Australian property were down one-third in the first half of the year, compared to the second half of last year.
"Some Chinese buyers have clearly shifted their focus from Australia to other countries. Australia has lost market share," said Jane Lu, the portal's Australian head.
She said new property taxes, restrictions from Australian banks lending to foreign buyers and tighter Chinese capital controls had all played a part.
"Chinese capital controls have contributed to the constrained environment and made inexpensive countries like Thailand look more appealing," Ms Lu said.
The issue for Australian developers and the market more broadly is that the drop-off in Chinese interest comes at the same time as a record number of new apartments are due to hit the market over the next year.
Oz is one of the few nations that makes nothing but likes to buy lots of stuff. So we have to pay for it by selling our assets to the Chinese and other foreigners.
Remember this when you enjoy your imported cars, phones, computers, TVs, air con, clothes and everything else.
Don't tease me. Will this really end the real estate boom this time?
We have passed any real chance of a tipping point, I think there is significant evidence to show the market does not require FHB to prop up the lower end. From this we now have a housing market that is not dictated by historic norms, BP calls it transmutation and his theory is correct he just farked up when he proclaimed it for Perth in 2015.
We're in a new paradigm, prices may stagnate for a short while but they won't collapse because the transfer of wealth has been so great that the majority can afford to ride out a recession.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy