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Will China trigger a property revival?

By Juwai, 02 February 2012

What is the best news Australian residential property owners and share investors have received in the first month of 2012? The mainland Chinese have not deserted the inner city apartment markets of Sydney and Melbourne. Robert Gottliebsen reports for Business Spectator. February 1, 2012 -- You will remember that last November,

Chinese purchases of inner Sydney and Melbourne apartments off the plan suddenly halved (The sting in a China property tale, November 23). The 2012 return of the Chinese to inner city apartment buying will underpin the brighter figures we are seeing in the overall Australian dwelling market, as explained by Christopher Joye (First taste of a housing recovery, January 31).

Clearly the Chinese feared the severity of the funding squeeze back home which made their Australian adventures so much more risky. There was danger that if the squeeze on domestic China funding had gathered momentum, then the Chinese apartment downward trend would have accelerated, affecting the wealth of many Chinese property owners. Almost certainly that would have translated into further reductions in new Australian contracts.

But if the China squeeze was severe enough, it might have also caused a large number of Australian partly-completed apartments – where the Chinese have paid 10 per cent deposits – coming onto the market, because the Chinese walked away from the contracts as Australians did on the Sunshine Coast. And almost certainly, if events in China caused a pullback on Chinese buying of our apartments, then it would have also been reflected in much lower commodity prices as exports slowed. In turn that would have affected the sharemarket. The man who exposed this danger,

Australia's largest apartment developer Harry Triguboff, says that while January is always a confusing month because there are two New Year celebrations, the Chinese are back in the Sydney market. Moreover, Sydney rental yields are rising. Australians were not major buyers of inner Sydney apartments in 2011 but are now making inquiries. Triguboff says that another half a per cent fall in interest rates will see Australians back in the market. Of course, while a half a per cent fall in the Reserve Bank’s official rate is on the cards for the first half of 2012, the turmoil in Europe has put the cost of overseas borrowing by the big banks above local Australian term deposit rates.

That means that mortgage rates will not fall by the same amount as official interest rate falls. As I have pointed out before, the Australian government can borrow overseas close to two per cent below the rates banks pay so, if they want to, the Australian government can borrow and lend the money to Australian banks, lower Australian rates, and take a nice profit on the way. But the Chinese don’t need Australian money to buy apartments and they are beginning to understand that landlords in Australia gain a much greater yield than those in China.