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Asian appetite for Australian houses tipped to grow
Brief:Credit Suisse expects that the Chinese will purchase $44 billion of Australian residential property between 2013 to 2020.
As China's property market slows, the local one becomes more attractive, analysts say. Photo: David Tease

The pace at which Asian investors have been snapping up Australian property is expected to accelerate and hit $44 billion in the years ahead, putting upward pressure on local prices.

The staggering figure, predicted by Credit Suisse comes as global investment manager Nomura warned on Tuesday that China’s property market is headed for a correction and economic growth will slow to around 6 per cent, unless the government steps in.

“We argue the correction has been triggered by monetary policy tightening since mid-2013 and that the downtrend will continue unless policy tightening reverses into loosening,” Nomura research analysts said in a report on Chinese property.

Credit Suisse equities strategist, Hasan Tevfik said a lack of momentum in Chinese property means that the Australian housing market is likely to become even more attractive in the short term.

“Residents in Sydney and Melbourne are understanding that the rules of property prices are changing and should expect even more demand for local real-estate from Chinese investors as they look for a more stable store of wealth. Globally desirable cities, like the major ones in Australia, will always be destinations for foreign capital,” he said.

The median house price in Sydney - the most expensive capital city on average, now stands at $800,000.

Credit Suisse expects that the Chinese will purchase $44 billion of Australian residential property between 2013 to 2020. This is up from $24 billion over the past seven years.

“Our forecasts already assume the amount of Chinese wealth creation slows materially, in-line with a less buoyant Chinese property market. We need to forecast more extreme distress in China for us to lower our longer-term assumptions on flows into Aussie residential property,” said Mr Tevflik.

A string of economic data shows that China’s property market has been slowing with prices falling and investment growth turning negative in four of China’s 26 provinces in the first quarter of this year, while in two provinces it fell by 25 per cent compared to the same period the year before.

By comparison, Australian property prices have been gradually increasing, albeit at a slower pace last month, largely due to the support of record low interest rates at 2.5 per cent, demand outstripping supply and a flood of Asian buyers.

Westpac, which on Tuesday launched a new monthly report that aims to fill the information gap on the Chinese consumer, also expects Asian appetite for Aussie property to increase if China slows further.

“When the Chinese property market is not doing as well, and Mainland investors they decide to move their funds elsewhere, foreign real estate is seen as a very safe alternative,” said Westpac senior international economist Huw McKay, adding that Australian property remains hugely popular among international investors.

Urbis chief economist Nicki Hutley said the prospect of much slower growth will have further implications for Australia, because of our reliance on export growth for our own gross domestic product (GDP) over the next couple of years in particular.

“There is still a lot of Chinese money looking for a place to rest, and buying a place in major cities is underpinned by more than just expected returns. It might be about buying your kid a place at an educational institution for example. So I don’t think we’ll see a major pull back there, although the recent anecdotal evidence is that demand has come off a little in the past month or so anyway,” said Ms Hutley.

Housing investment has been a big driver of growth in China, particularly as the economy transitions away from growth led by infrastructure investment towards one of consumption.

While the Chinese government predicts that GDP – a key measure of growth – will run at an annual pace of around 7 per cent this year, significantly higher that most of the developed world, including Australia, the impact of a slower property markets could force growth to slow at a faster pace and this would spook global sharemarkets and commodity prices.

Already this year, expectations of falling steel demand from China has weighed on iron ore prices, which are down over 20 per cent since the start of this year.

Australia is one of the biggest suppliers of iron ore to the Chinese market, and this alone has been commonly sighted as one reason why Australia remained relatively sheltered from the effects of the financial crisis.

Nearly 70 per cent of family assets in China were tied up in the housing market last year, according to Bloomberg. Mortgage debt in China is estimated at a 30 per cent share of disposable income, up from 18 per cent in 2008, Bloomberg reported earlier this year.

“We see a rising risk of a major correction which poses a serious threat to growth this year. In this report we consider two scenarios for the outlook for property investment: 1) investment growth slows by 6 percentage points (pp) from its 2013 level; and 2) investment growth slows by 12 pp,” the Nomura report said.

“Without policy stimulus, we estimate that scenarios one and two could drag GDP growth down to 6.7 per cent and 5.8 per cent, respectively," the Nomura report said. "Our baseline remains that the government will have to loosen fiscal, monetary and property-sector policies significantly to achieve our forecast 7.4 per cent GDP growth in 2014. We expect growth to slow to 6.8 per cent in 2015 as policy easing will likely exacerbate the oversupply problem in the long run."


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