From Gotti today:
Where China spends its vast $US3.7 trillion foreign reserves is going to dominate asset prices and developments around the world.
Right now apartments in Sydney and Melbourne are in favour with the Chinese. And Brisbane is also gaining support.
…I don’t think it will be long before we see a large tower completed and locked with no occupants. China has countless towers in that category and there is no reason to believe that, in time, the Chinese will not follow the same pattern out here.
…Sydney’s largest apartment developer Harry Triguboff says the biggest price booster is the way that the department of planning and local councils approve projects, which holds up new developments by at least one or two years.
…We are headed into a society that is very different to anything previous generations have experienced. The home ownership dream is fading, at least in the inner city, and is increasingly being replaced with a tenant relationship with Chinese landlords.
Hmmm, yes, these are the trends, for now. As readers will know, MB supports Gotti’s point about congested planning.
But, there are reasons to think that this is unsustainable. Chief among them is that building apartments does not do enough to support the surrounding economy. China can do it because it runs enormous current account surpluses and has other growth drivers.
We can’t do it for long, even with Chinese money, because the economy around the apartments will continue to wither as poor competitiveness drives more and more businesses offshore. That means rising unemployment and falling demand for houses. Sooner rather than later, even if some large portion of the apartments are land-banked, over-supply will weigh on property prices as well and before you know it you’re into a deflationary bust.
That is essentially what happened to US housing. Though the Chinese money went into bonds that funded the property development, not into the property itself. It seems to me only marginally more stable to sell China the actual properties. All money needs to make a return and the social consequences of what Gotti is describing are clearly unsustainable.
