The unpleasant fallout from hitting the wonderful Chinese apartment buyers who could fail to settle
Robert Gottliebsen, the Business Spectator columnist says the Chinese have suddenly turned their back on the Sydney apartment market, with Melbourne and other markets set to follow.
"We are hitting our largest trading partner with an unprecedented series of blows at a time when they are undergoing fundamental change.
"We had better brace ourselves for the consequences because they will not be pleasant."
The new foreign capital restrictions in China, will effectively block them completing their Australian off the plan purchases.
"Vast numbers of Chinese purchases are in danger of lapsing.
"If that happens, it will send property developers to the wall," he wrote.
A halving in Chinese and other foreign buyers in the Sydney apartment market was suggested last week by Sydney’s largest apartment developer Meriton’s Harry Triguboff.
As Harry Triguboff has repaid all his debts, he is still able to fun the Chinese “off the plan” purchases, but few other developers have such a balance sheet to fund the purchases.
Gottliebsen noted Chinese buying of apartments was one of the biggest forces that enabled Australia to avoid going into recession following the dramatic decline in mining investment.
"If the current dramatic decline in Chinese apartment buying continues, in the absence of some other offsetting factor, it could easily lead to a recession in Australia.
"Australian bank profits are not in the front line of vulnerability but they will be hit."
He also noted the Chinese are now making it much harder for their nationals to take money out of China.
"Nevertheless, Chinese nationals can normally get a 10 per cent deposit on an apartment out of the country — although sometimes it can take credit card gymnastics.
"That means they have the required deposit for an ‘off the plan’ purchase and they can normally get another 20 per cent out of China on settlement so that they have a 30 per cent deposit when the apartment is completed.
"Previously, they could get the remaining 70 per cent required on settlement out of China.
"Now that’s much harder.
"Just when the Chinese are under pressure, at the urging of APRA, the big Australian banks have lowered their loan to valuation ratio from 70 per cent to 60 per cent and have stated that they will no longer recognise self-employed income from overseas."
He suggested that the Chinese have been wonderful borrowers.
Source: Property Observer by Jonathan Chancellor