Why Australia needs Chinese property investors

The Chinese will become even bigger players in our property market, and Leighton's sale of John Holland to China Communications Construction Co is just the beginning.

As oil prices suffer more sickening blows, and iron ore and coal languish, only one force stands between Australia and a serious recession -- Chinese investment in our property market. Today's announcement that Leighton is selling its John Holland business to China Communications Construction Company for $1.15 billion shows just how eager the Chinese are to get access to Australia.

And in time that investment will move more heavily into other areas, particularly agriculture and tourism.

I’ve already looked at some of the local and global side effects of the oil slump (Brace for the knock-on effects of the oil price slide, October 10), so today it’s appropriate to note that the Chinese boost to investment in real estate is a global phenomenon.

Whether it be London, New York, Melbourne or Sydney, housing markets have never seen anything like the current rash of Chinese and Asian buying.

In cities such as London and New York the buying melds into the total scene, but in Australia’s two largest cities, Chinese investment has come to dominate the market. In Australia, the construction activity that comes with that Chinese investment could not be coming at a better time, given the mining investment recession. If we take a broad definition, the construction industry is close to the country’s biggest non-government employer.

We may once again be the lucky country.

As I understand it, some 20 to 30 per cent of new mortgages come from resident or overseas Chinese, though it’s often hard to determine whether the transactions are for locals or overseas residents.

The bank handling most of the overseas Chinese investment is Westpac because it appears to have a better handle on the credit ratings of overseas Chinese than the other banks.

But when they purchase apartments and other dwellings, the Chinese are not usually following Australians and borrowing at, say, 90 per cent of the purchase price. Most of the loans are for around 60 per cent of purchase price and the Chinese repayments are faultless. The biggest problem for the lenders is that the Chinese like to repay the loans faster than required.

An enormous portion of the Chinese investment comes via new developments and the Chinese developers behind the big Sydney and Melbourne apartment projects appear to be working on an expected return of about half that required by their Australian counterparts. Accordingly, many Australian developers sell the land and approvals to the Chinese and let them go to the next stage.

That’s why Chinese are dominating new developments, particularly in Melbourne where there is a high likelihood of major oversupply of one or and two bedroom apartments (Why Sydney won't mirror Melbourne's apartment glut, December 5).

Many of the Chinese who are investing in Australia see Melbourne and Sydney as the new Hong Kong. And this view has multiplied in intensity given the efforts by China to tighten control over Hong Kong.

At the moment, some of the Chinese investors are planning a slowdown for the early months of 2015 but this will be temporary and they will be back with force.

Clearly, one of the motivations behind David Murray’s recommendation that banks lift their equity backing for housing loans is inspired by the fear that the Chinese might one day exit and send property values spiraling down.

The Chinese tell us that this is highly unlikely. One possible course is that Australia will curb overseas house buying and dwelling investment and make visas much harder to gain -- a path taken by Canada.

But that too is unlikely. To put it simply, during the middle of the mining investment boom we did not need Chinese investment,  but now we do.

Related Articles