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Chinese home buyers set to snap up Australian property in 2019

 

The number of Chinese buyers of Australian homes is likely to remain steady this year in what’s being seen as a major boost for the weakening domestic property market.

Continued wealth growth in China – with dollar-worth per adult having risen four-fold over the past six years – an eye for an Australian bargain, a weak yuan and the trade war between the US and China are all predicted to be factors in keeping investment here bubbling along.

The upbeat forecast comes even as foreign buyers face extra state taxes on their purchase and struggle to obtain finance, according to the new report Australia 2019 Outlook for Chinese Residential Real Estate Buying  by Chinese international property portal Juwai.com.

“Unlike Australians, Chinese also lack appealing alternative investments at home,” said Juwai chief executive Carrie Law.

“Bank deposits earn unnaturally low rates of return, Chinese stock exchanges are still immature and were the world’s worst performing in 2018, Chinese real estate is tightly regulated to make investing difficult, and peer-to-peer lending and private equity funds have collapsed due to fraud, poor management, and government crackdowns.

“Because few other appealing investment opportunities exist, Chinese have put 53 per cent of their wealth into real estate. In a 2018 survey, Chinese overseas investors named residential property their favourite asset class.”

The report estimates that mainland Chinese buyers will have spent $US129.3 billion on global real estate last year, a growth rate of between 3 per cent and 8 per cent over the previous year.

That level is likely to remain stable this year, with Victoria set to continue receiving the highest share of investment, Sydney coming in second, and Brisbane third, with Adelaide and Canberra next.

In terms of buyer interest, inquiries jumped 58.1 per cent in the fourth quarter last year compared to the same period in 2017.

The forecast is backed up by Australian agents who routinely deal with Chinese residential buyers. Monika Tu, director of agency Black Diamondz, says 2019 has already kicked off strongly with seven groups of potential Chinese buyers among the nine groups inspecting a $10 million property with six bedrooms and feng shui design in Sydney’s Pymble at the weekend.

“The demand is still there, but the biggest challenge is getting their money out of China or getting money from local banks,” she says. “But there’s a big advantage there for the vendors. Because they’re often now negotiating longer settlements, they’re paying more to do that, which often means big gains for sellers.

“And Australia is still a preferred destination for them, although the local politics is creating uncertainties, particularly in the investment market.”

Chinese specialist at Sydney Sotheby’s International Realty Lu Lu Pallier also believes that 2019 will continue to see similar levels of Chinese buying as 2017. “The biggest influence is government policies both in China and Australia, and neither of those have changed,” she says.

“But we will see an effect on the off-the-plan market as a lot of people are coming up for settlement this year. Restrictions on taking their money out of China and lending restrictions here mean a percentage won’t be able to settle, will lose their 10 per cent deposit and the property will go back on the market and prices will go down further.”

Victoria is set to again see the lion’s share of Chinese money. The state, according to Foreign Investment Review Board data, receives $4 of foreign real estate investment for every $3 that goes into NSW and $2 for Queensland.

“Melbourne retains clear advantages over Sydney in terms of lifestyle, prices, and also a foreign buyer stamp duty that, at 7 per cent, is one point lower than the NSW equivalent,” says Law.

“[But] we see no chance Sydney will lose its No.2 spot this year. Sydney is better known among Chinese, who consider it the iconic Australian city, with the harbour, Harbour Bridge, Opera House, and Bondi Beach. Very few attractions in Melbourne have earned the same level of awareness among Chinese consumers.”

The Chinese market in Brisbane is driven largely by families whose children are studying in the city and want to house them in a property they own. In 2018, more than 33,000 Hong Kong and mainland Chinese students were studying in Queensland – up from about 21,000 in 2015, a 57 per cent increase over four years.

The forecast is that Chinese buyers will continue to focus on new apartments and house and land packages particularly in outer suburbs with new estates where developers or third parties can provide financing.

SMH / JAN 21, 2019

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The crucial data to watch as Australia’s housing downturn unfolds

Australian home prices have now been falling for over a year, led by increasingly steep falls in Sydney and Melbourne, Australia’s largest and most expensive housing markets.

Many suspect the falls will continue for some time yet with the only real area of debate being just how large the peak-to-trough falls will be.

The downturn has already left its mark on residential construction, leading to large declines in building approvals and activity, especially for apartment building, along with a decline in employment across the sector.

The question that many are now grappling with is whether the downturn will lead to similar weakness in other non-housing areas of the economy. In particular, consumer spending, accounting for over 50 per cent of GDP.

For the vast majority of Australian households, the family home is the largest store of wealth. And with prices falling in many parts of the country, including in the most populous areas, there is a growing sense of unease that it could see consumers starting to cave, creating downside risks for broader economic growth.

To this point there is no right or wrong answer — some believe the perceived reduction in household wealth will crimp household spending. Others, however, believe strong labour market conditions and legislated and potential further income tax cuts will be able to offset the negative wealth effect from housing, allowing households to maintain their spending levels in the period ahead.

To David Plank, Head of Australian Economics at ANZ Bank, it’s the income side of the equation, rather than the housing downturn, that will likely determine what the future holds.

“We think it difficult to argue there will be no wealth effect [from the housing downturn],” he said in note to clients.

“In our view, the fall in the household saving rate in recent years has been in part due to rising wealth. At the very least, we expect declining house prices to lead to a stabilisation in the saving rate, if not an up-tick.”

Changes in household wealth have often been influential on the level of disposable income saved by households.

In recent years, the proportion of disposable income saved has been falling, suggesting higher wealth levels, in an era of weak income growth, has encouraged households to save less in order to sustain their spending levels.

Now that wealth levels have been falling — not only due to declining home prices but recent weakness in Australia’s stock market — ANZ sees that trend stalling or reversing slightly, casting doubt over the outlook for the largest part of the economy.

For Plank, if households begin to hunker down by saving more, income levels will play a crucial role in determining whether that will lead to a slowdown in household spending.

“What a stabilisation in the saving rate means for household consumption will critically depend on what happens to household income,” he says.

“Tax cuts — which may be brought forward by the Government ahead of this year’s election due to the improved fiscal position — will provide a material boost to disposable income. We also expect wage growth to accelerate somewhat over 2019 and 2020, so long as employment growth remains robust.

“These factors will mean the household saving rate could stabilise without a dramatic slowing in household spending.”

Plank also notes that the current situation is somewhat unique, noting that rather than being driven by higher mortgage rates, the downturn in the housing market has largely been caused by the introduction of tighter lending standards.

“Past declines in house prices have been caused by higher interest rates. And higher interest rates would also be expected to slow household spending. The initial trigger for this housing downturn is different from those in the past, with it having been a tightening in the availability of credit rather than higher interest rates,” he says.

“This difference may mean a weaker relationship between house prices and consumption than in the past.”

Plank says tighter credit conditions may have also been responsible for the sharp drop in Australian new car sales late last year, creating uncertainty about the impact of sliding home prices on discretionary spending by households.

“We think it reflects the impact of tighter credit and is not necessarily evidence of a strong wealth effect,” he says.

While Plank suggests the uncertainty means the linkages between wealth levels and household spending may not be as strong as they were in the past, he admits that recent trends point to downside risks for household spending in the period ahead, including the potential for a larger-than-expected slowdown.

“We don’t think this will be the case given the nature of this cycle. But there is a lot going on in the current housing downturn that is unique, so we have to be open to the possibility that it might,” he says.

ANZ is currently forecasting that home prices in Sydney and Melbourne will fall 15per cent to 20per cent from their previous cyclical peak, a scenario it says will see the RBA hold off lifting official interest rates until the second half of 2020.

Financial markets currently hold a different view, putting the probability of the RBA cutting its cash rate by 25 basis points by November this year at around 50per cent. An increasing number of economists are also adopting this view, including Capital Economics who are now forecasting two rate cuts by the RBA by the middle of next year.

From a domestic perspective, updated data on home prices, employment, inflation and household spending in the coming months will likely determine whether even easier monetary policy settings from the RBA are justified.

Business Insider /21 January 2019

CategoriesNews

Why it’s crunch time for Australia’s wannabe homeowners

After years of being priced out of the market, Australia’s embattled first homebuyers are finally making a comeback.

But while conditions are all but perfect for first-time buyers right now, experts have warned that could be about to change ? quickly.

With a state and federal election just months away, the recommendations of the banking royal commission expected within weeks and several crucial policies hanging in the balance, the fortunes of young buyers could reverse swiftly.

Realestate.com.au chief economist Nerida Conisbee said first homebuyers were now faced with a crucial window in which to buy before the market potentially changed drastically out of their favour.

“First homebuyers have been very active in the market over the last 12 months – we can track the finance of first homebuyers through the ABS and we know particularly in NSW we saw a really big jump after the First Home Owners Grant was introduced in mid-2017,” she said.

“We also know property demand is highly dependent on the availability of finance, so much so that when interest rates drop there’s quite a strong increase in activity on our site, because people are very sensitive to it.

“But first homebuyers aren’t the ones who have been finding it hard to get finance – the ones really struggling to get the best rates and the most money are investors, who will probably be the main beneficiaries if the banks start to ease up their terms.”

Ms Conisbee said if banks relaxed their policies, investors were likely to return to the market – which is bad news for first homebuyers.

“We know certain conditions make first homebuyers particularly unhappy and the first is rapidly rising prices? that’s an area this group typically does a lot of research in when they’re looking to buy, and they like to take their time, so when the market is running red-hot they’re not very active,” she said.

“Another challenge is when there are a lot of investors in the market, because they’re often competing for the same sorts of properties in the same locations and price range.

“At the moment first homebuyers are pretty happy because there are fewer investors, so they’ve got the market to themselves. If financing eases up, whether or not it’s better for first homebuyers will depend on how much investors re-enter the market.”

Ms Conisbee said nervous investors were anxiously waiting for the results of the upcoming NSW election and the federal election which could bring changes to negative gearing and capital gains tax policies.

She said potential buyers were also keenly awaiting the final report from the banking royal commission, due in February, which could affect lending practices.

“Investors have backed off now, and specifically in NSW a change in government could also lead to a drop off in first homebuyers if the state’s first homebuyer’s grant policy changes ? it could have a massive impact on activity,” Ms Conisbee said.

“It’s a hard thing at the moment with a lot of people coming out with predictions about a number of things that could drastically change the direction of the market.”

Ms Conisbee’s comments come as Treasurer Josh Frydenberg urged Aussie banks to ease up on lending conditions that have been significantly tightened as a result of the banking royal commission.

Referring to newly released CoreLogic figures which revealed a national dwelling price drop of 4.8 per cent in 2018, Mr Frydenberg said Labor’s plans to restrict negative gearing in the event of an election win would have a “negative impact on confidence, especially among investors” and worsen the housing downturn.

He also urged banks to relax lending policies.

“Targeted and short-term ­interventions from APRA in the housing market has, according to the RBA, ‘increased the resilience of the economy to future shocks’,” The Australian reported Mr Frydenberg as saying.

“However, now these interventions have been wound back, it is vitally important that the banks continue to provide affordable and timely access to credit. Keeping open their loan books to borrowers will help maintain the strength of the Australian economy.”

news.com.au / JANUARY 4, 2019

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