The big short on Australian Housing

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Australian property developers refuse to panic about Chinese cash controls
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Jan 23, 2016Sue WilliamsDomain Reporter

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Australian property developers are refusing to be panicked by reports that China is tightening controls over the flow of investment funds overseas.
Developers say Chinese cash flow restrictions are only a short-term adjustment.Photo: domain.com.au
They insist it’s merely a short-term market adjustment that will do nothing to cut the record levels of Chinese money coming into the country – especially when our falling dollar and volatile sharemarkets both here and in China mean they can levy even more value from Australian residential property.
“The restrictions are just a short-term fluctuation which is the way the Chinese manage their cash flows in and out of the country,” says Tony Crabb, national head of research at agency Savills International. “It won’t be a structural change at all.
Just this week, I’ve had clients who’ve transferred over $100 million into Australia.Tony Hickey
“We always see Chinese capital like the ‘Whack-a-Mole’ game in fairgrounds, where you hit a toy mole with a mallet and it’ll pop up somewhere else. You tighten restrictions in one place and capital will just rebound somewhere else instead.”
His words follow claims that Chinese property buyers were finding it harder to get their money out of the country after foreign exchange controls were strengthened in response to a record $US108 billion fall in China’s foreign currency reserves in December to the lowest level in three years.
State-owned banks were said to have been blocking or delaying the flow of capital out, with the central bank defending the yuan. Some commentators in Australia felt this could dramatically reduce the number of Chinese buyers of Australian property and have a major impact on our residential market.
But Rick Butler, CBRE senior managing director of capital markets and international investments, says there has been no slowdown in Chinese investment in Australian property, and no signs of any to come.
“We believe it’s only affecting the special visa people with China hoping to shut that end down a bit, the people who put $5 million in or taking loans out of Hong Kong,” he says. “We’ve found the people who want to get money out can get it out in a single moment.”
In addition, he’s never seen such a tranche of Chinese money spent in Australia, with reports that it was Chinese money that bought 71 Macquarie Street at Circular Quay as well as an $80 million site in Macquarie Park. Chinese developer Aqualand bought The Revy building on Darling Island as well as 168 Walker Street in North Sydney, and Chinese property tycoon Dalian Wanda snapped up Goldfields House at Circular Quay.
Successive studies have shown overseas Chinese funds in the Australian residential property market account for only around 2 per cent of buying power; with most coming from Chinese migrants coming to live in Australia, while Chinese students arriving in Sydney and Melbourne for their education are also being permitted to buy for the period they’re here, which can be around 11 years.
“The Australian market is being more impacted by the lending restrictions on domestic investors,” says Crabb. “The Chinese restrictions, it’s a margin thing; it will have barely any effect.”
Chinese developers building here also say the changes haven’t had any impact at all on their business, nor on their confidence. Greenland Holding Group is China’s largest state-backed real estate group, and has more than $1 billion worth of property currently in Australia, including what will be Sydney’s tallest tower, the nearly-sold-out Greenland Centre, as well as Lucent in North Sydney and Omnia at Potts Point, which has only 30 apartments left for sale.
“Greenland Australia hasn’t noted noticeable effect on sales due to these changes,” said a spokesperson. “We don’t see these changes as having any substantial effect on the market and have every confidence in demand remaining robust. Sales and enquiries remain strong from buyers at each of our developments.”
On the Gold Coast, work starts next week on the $1.2 billion, 88-level tower that’s about to put Q1 in the shade, and the developer, China-based conglomerate Forise, also has no hesitation.
Spokesperson for the group, lawyer Tony Hickey, says work will begin at least three months before the proposed 693 apartments go up for sale off the plan as there’s so much confidence in China in the Australian market.
“The advice I’ve had from them, and other significant clients, are that properly approved commercial projects that have gone through all the right channels, or individuals who’ve had their funds approved, will have no problems at all,” he says.
“Just this week, I’ve had clients who’ve transferred over $100 million into Australia. They all believe in the potential here, and that there are going to be no problems.”
That concurs with the findings of Simon Henry, co-founder of Juwai.com, a website that lists homes around the world for Chinese buyers. “We haven’t seen any impact on Chinese property views from the reported tightening of capital controls this week,” he says.
“Inquiries via Juwai.com and property viewing have continued apace, with only normal daily variations. In fact, on Wednesday this week, they were 10 per cent higher than they were on Monday. The macro story here is that China is relaxing its currency controls over time, and – as with any big shift – there will be some bumps or curves in the road during the journey.”
He says that, long-term, China intends to fully liberalise its foreign exchange rules, so that its currency can be freely traded, its businesses can easily operate internationally and cities like Shanghai can become international financial centres on a par with New York and London.
“These changes will increase by many billions the amount that Chinese invest overseas each year, including in property. It’s not publicly known when this will happen, but very credible observers believe that significant changes will begin later in 2016.”