An iron hand under housing

In the last three weeks a dramatic event has taken place in the Australian residential apartment market – the mainland Chinese have suddenly increased their "off the plan” buying of inner Sydney, Melbourne and even Brisbane apartments.

The Chinese have been the main buyers of Sydney and Melbourne inner-city apartments for some time (they were not normally Brisbane buyers) but, according to Australia's largest apartment developer, Harry Triguboff, the level of buying over the last three weeks is without precedent.

It underlines the fact that substantial parts of the Australian residential market are dependent on what happens in China. Some of this avalanche of Chinese apartment buying will spill over to wider residential markets, although, because so much of it is off the plan, it effects construction activity rather than the pre-owned residential market. There are a substantial number projects in the pipelines so this buying will avoid what was potentially a glut in all three cities.

It seems that Chinese apartment investors have been quietly told that the Chinese government wants a subdued Chinese apartment market and that they would much prefer the investors to buy offshore (which also helps keep the Chinese currency down).

In recent months there have been substantial swings in Chinese demand for Australian apartments.

Last November, Chinese purchases of inner Sydney and Melbourne apartments off the plan suddenly halved (The sting in a China property tale, November 23) – a move which, if it had continued, would have had a major effect on apartment prices. At that time, the severity of the funding squeeze in China greatly increased the risk of Australian purchases by mainland Chinese because their investments in China could be jeopardised.

Over the Christmas break the China credit squeeze eased and January saw a return of the Chinese to inner city apartment buying (Will China trigger a property revival? February 1).

Although the Chinese have been the main buyers of inner city Sydney and Melbourne apartments in the past the buying was spasmodic. Most of the buyers were those educated in Australia.

The latest buying is much more concentrated. Given that the Chinese are buying the apartments off the plan, it means that apartment building is going to be strong well into the future irrespective of the level of Australian interest rates. Nevertheless, the recent lower Australian rates and the expectation of further falls has kindled interest by Australian buyers.

So the market has become much stronger.

In the past the Chinese concentrated their purchases in Sydney and Melbourne but this time the force of the buying is so much stronger that it has spilled over to Brisbane, where the prices are cheaper. It has not extended to the Gold Coast.

The Chinese find that Australian yields from apartment rents are much higher than those in China.