From Credit Suisse:
Shortly after the devaluation of the RMB/USD in August, many anecdotes emerged that Chinese property buying in developed markets had slowed. The consensus view is that Chinese capital controls became much stricter, making it more difficult for Chinese residents to fund purchases abroad. However, this view is hard to reconcile with the balance of payments data, which suggests that the pace of capital outflow from China has actually accelerated in recent months. Also, we note that capital controls can be bypassed through foreign currency borrowing.
From an Australian perspective, we suspect that the anecdotes are accurate. Over the past few months, there has been a significant decline in auction clearance rates in Sydney and Melbourne (two of the more popular destinations for Chinese) to the low 60s from the high 80s. The declines cannot be explained by macro-prudential tightening alone. We have also seen home-buyer’s sentiment fall sharply, as if:
■ There has been a negative shock to affordability and credit availability.
■ The missing “cashed-up” foreign buyer has somehow caused (leveraged) property investors to revise down expectations for capital growth. To be sure, there are still reports in the media that Chinese buyers are present in the market, and that new efforts are being made to attract Chinese money.
…Our thesis is not that Chinese buyers have disappeared from the market completely. But the weight of evidence suggests that at the very least, there has been some cooling of Chinese interest in recent times, off an historically high level. The limited data available suggests that Australia could have experienced a significant pull-forward of Chinese demand over the past few years.
…we suggest that the Chinese consumer is cyclically weak because the economy is struggling with exchange rate overvaluation and capital flight. It is the cyclically poor condition of the Chinese middle-to-upper-class which is driving the slowdown in property buying abroad.
Leading indicators suggest that the slowdown has further to run globally. Even a flattening out of Chinese buying of Australian property is bad news for the housing market because supply is rising, and locals are being shut out of the market by macro-prudential regulation and poor affordability. The housing market slowdown in train will probably require policy makers to ease financial conditions further.
