Empty homes, restricted investments and a cooling market. Is this finally a sign that the bubble is set to burst?
In fact it might cause a surge in property prices, at least according to some. But let’s break down the news first.
Research from the Union Bank of Switzerland has unveiled some rather perplexing data. Apparently, a quarter of homes owned by Chinese across the world are empty. On top of which almost half are only lived in occasionally.
Now that is a little astonishing. Especially because it is no secret that Chinese buyers have a fondness for Australian property.
I don’t expect to walk down the street and assume every fourth house is empty. And that certainly isn’t the case, but still the figures are a little baffling.
Jane Lu, The Australian executive of Chinese property site, Juwai, has dismissed the data. She contends that Chinese investors aren’t that wealthy. She states, ‘Chinese investors are no more likely to turn down easy rent money than are Australians.’
So what are we to make of this claim then? Perhaps Australia is an outlier that isn’t impacted, and the vacancy of property is limited to other countries.
Either way it’s information that won’t sit well with people being shut out of the market.
The government in particular will be under scrutiny. They’re already struggling to show that foreign-ownership rules are working.
All in all it’s actually pretty irrelevant to Australia’s property market. However, it does lead to a more pivotal point — Chinese investment is easing. There is no denying that.
But before the hordes of alarmists scream ‘bubble!’, let’s analyse it rationally.
2016 was a bumper year for Chinese investments. It reached a new high of $31.9 billion, compared to 2015’s $24.3 billion. That’s some exceptional growth, but it was never going to be sustainable.
Foreign investment has been a contentious issue for both Australia and China. We’ve been trying to limit the amount of land being bought up. China is trying to limit the amount of money leaving the country. You can’t have pressure from both sides without something giving.
Does that mean we’re going to see property prices fall? It doesn’t look likely, at least if you follow realestate.com’s chief economist’s logic.
Nerida Conisbee believes that slowing investment from China will in fact cause prices to rise. Yes, rise.
She believes that with less buyers we could be headed for a supply drought.
‘Both cities are really starting to see a slowdown in prices already and I think with less supply in the market it will mean prices will not stabilise as much as people are hoping,
‘There’s not enough supply so this will just make it worse…it’s not great news for buyers wanting to get into the market,’
And keep in mind that while I say slowing investment from China that doesn’t mean no investment.
The market might ease slightly, August has definitely been quieter compared to activity earlier in the year. But it is by no means dead in the water.
CoreLogic recently released their data for house prices in August. Both Sydney and Melbourne are up 12.2% and 16.5% respectively over the past 12 months. Which is lower than earlier this year, but is still an extremely solid return.
That return is certainly buoyed by Chinese demand. So, while it might continue to ease into the second half of the year, it doesn’t look likely to crash. In fact, Ms Conisbee believes that:
‘When it is all done and dusted, this year is likely to be the second or third biggest year for Chinese investment in Australian real estate to-date,’
Remember to take the media spin with a grain of salt. If you want the best way to know what’s going on in the property market then look for the right signs.
Phil Anderson has been following these signs for most of his career, because he knows that they work. And it’s also why he’s tipping that property boom could last a lot longer than many think. To find out more, check out his latest report right here.
Junior Analyst, Markets & Money