The Business does the Chinese apartment squeeze

By Leith van Onselen

ABC’s The Business ran an interesting segment last night looking at the bank clampdown on Chinese apartment buyers, which has raised default risks as thousands of off-the-plan apartments are completed over coming months.

According to the report, only 20% of Chinese buyers of Australian apartments actually visit the country to look before deciding to purchase.

Most Chinese buyers get finance by Aussie banks because they don’t want the Communist Party to know what they are doing.

But the tougher new financing rules on foreign buyers, combined with newly introduced stamp duty rules, have dampened demand and precluded buyers from obtaining bank finance over the past quarter; although private lenders charging much higher interest rates have filled some of the gaps.

But with lots of supply still to come online, mortgage broker Marshall Condon warns that many Chinese buyers may break their contracts: “there’s probably 50% that are a bit of a concern”.

Full video above.

Comments

  1. “Most Chinese buyers get finance by Aussie banks because they don’t want the Communist Party to know what they are doing”

    What could go wrong?

    • Hope that the CCP bans these banks from doing business in China. That’ll learn them.

      CCP is our only hope, not being beholden to the banksters, unlike our own government.

    • Any wonder international hedgies with an ounce of a clue won’t touch our banks with a bargepole. Wholesale suckers keep lining up though.

    • [email protected]

      Thousands of empty dogboxes that can’t sold or rented will flood the market for years, destroying value of all other properties on the market as happened in all other places that got overbuilt to buggery.

    • Well, when the ATO does the job that FIRB couldn’t, maybe they can share the data-matching results with the CCP?

      I wonder how the ATO is getting on with this task?

      Crickets chirping

  2. AlbyManglesMEMBER

    wonder how many chinese investors know they can only on sell these dog boxes into the domestic market which is already tapped out

    • I wonder how many realise these dog boxes are sold almost exclusively to unsuspecting foreigners because they are unfit for human habitation.

      • Have to disagree with you there, compared to Hong Kong or Beijing, apartments here are a luxury suite!

    • Why are they buying them in the first place? To get ill-gotten gains out of the country? That’s probably the case at the top end ($10m+), but less likely with dog boxes. So, for dog boxes, what’s the strategy? A quick flip for capital gain won’t work if there’s no after market, and they probably can’t send the cash home again. Rental yield? Not if they leave them empty.
      Are we dealing with a very large number of suckers who bought the dog boxes for no good reason?

      • Original JohnMEMBER

        Many reasons they buy but mostly 2 – capital gains and for their kids to use when studying.
        No – ill-gotten gains is a small percentage, many like my wife’s relatives have sold in China (made 25 million RMB cash from one unit) and want to diversify their holdings. She bought in Saba Malaysia rather then Australia and then got a developer to partner with her to build a condo tower.
        Most don’t know the restrictions on selling and think they can do a title transfer still in China to another Chinese buyer.
        Suckers or just not told everything and not smart enough or well researched enough to ask the right questions? But yes, expect a backlash unless the resale laws are relaxed.


      • But yes, expect a backlash unless the resale laws are relaxed.

        Yeah but by the time there’s a backlash it will be too late – the word will have got out that Australia is an unreliable place to stick your dough, so by the time the rules are changed to make it legal for Chinese buyers to buy established Aussie property from their next door neighbour in China, the next door neighbour won’t want a bar of Australia.

      • Backlash? It should be totally ignored. If you expect to make a profit you have to open to the idea of making a loss, hands down no exceptions.

    • “they can only on sell these dog boxes into the domestic market ”
      Temporary visa holders can also buy established properties. And with the new temporary visas being put in place, like the 10yr multiple entry visa to supposadly boost tourism I imagine there will be more options regarding resale.

      Does anyone now any rules regarding purchasing established property on this 10 yr multiple entry visas?

      • “Does anyone now any rules regarding purchasing established property on this 10 yr multiple entry visas?”

        It’s doesn’t allow residence so it doesn’t allow the purchase without FIRB approval.

    • I’ll second OJ below. When I talk to people in Beijing no one knows a foreigner is only allowed to sell to an Aussie or someone with the correct visa etc. They are shocked to learn the intricacies of the law. They think foreigners can buy property as they please. Not sure why they think so, esp as China has restrictions on foreigners purchasing property in the prc, I’m guessing they are unaware of this and just have not thought thorough potential consequences of foreign real estate purchase. Once you explain those they get it and then see the sense in restrictions.

      • I ask this in all sincerity, do the Chinese investors also believe a little palm greasing would iron out any obstacles that mere regulation might put in their way? Perhaps?

      • I don’t think so for a few reasons. Most of the Chinese investors will be actual investors, so will want to do things legally despite most likely not knowing all the relevant laws. You don’t bribe people in China the way many Australians might think it might happen. I’ve been here 15 years and I’ve never bribed anyone, nor been asked for one. There is corruption, but there’s a system to it here and it doesn’t include bribes for those types of services (but knowing someone to get something done, and facilitating that action is different). So who are they going to bribe in Australia? They don’t know the public servant. In addition most Chinese will believe there is NO corruption at all in the west, so why would they offer a bribe?

  3. Andrew WilliamMEMBER

    Only one in 5 actually visit to buy……yikes. Reminds me of the chap I knew who spent $5,000 on a graphite racing bike mail order from overseas and received a 5 year old girl’s bike complete with tinsel tassles on the handle bars. Are they that stupid to buy blind??

      • Safety deposit box. I’m no longer certain about this. They’re mainly gambling on capital gain…….its not like they’re using their own money – our banks are funding them.

      • I’ve got 7 empty houses around my place in the east, that are safety deposit boxes for sure.
        I’ve emailed the Gov…….and all my respones have been obviously lost in the post.

      • its not like they’re using their own money – our banks are funding them.

        well that’s the point eh. How will the banks call it in on a mainlander? Honesty?

      • They don’t need to “call it” if they have security over the property (and there is sufficient equity in it).

      • @jason,

        Iff the property used as security maintains its value above the size of the exposure at time of default with room to cover any sale expenses..

      • kiwikarynMEMBER

        I was speaking to my old next door neighbour who spent 3 months working in Canterbury, Vic and he said there were entire streets there where no one lived, no people, no cars, just a lawnmower guy once a fortnight.

    • 5 year old girl’s bike complete with tinsel tassles on the handle bars

      but was it graphite?

      and to be fair, those tassels (and stickers) definitely make my daughter’s scooter faster

  4. Did anyone read Gotti’s article yesterday in which a teacher in China paid for a 600K apartment for his daughter and also sends her to school at Monash? How much do teachers make in China, exactly?

      • Or an uncle who is a high-ranking officer in the PLA….i know of one who is a “teacher” but sure as shit doesn’t spend like one.

      • The ones on the take seem to all run businesses ‘supplying hotels with personal products’ e.g. shampoos, shower caps etc. It’s the bogus wealth justification of choice.

    • Which is why I’ve never bought the line that these are “ordinary, hardworking Chinese”. China is still a relatively poor country and Chinese wages and salaries are a fraction of Aussie incomes, So maybe a lot of this money is tainted money from some sort of corruption or criminality or they’re doing funny money things like misleading Australian banks about how much they’re earning back home or maybe in some cases, extended families are pitching in together. Then again, it could be the rich in China shifting their cash out, and even if they’re only a small percentage of the population, they would still be millions in number.

      • Typical Chinese are cash poor and asset rich. Pretty much all tier one city residents with a property are millionaires. Their income may be low, but if they have a spare property to off load (one which got for extremely cheap years ago), they are richer than most aussies.

  5. So it appears what the Australian regulatory authorities have not been prepared to do, despite it being their job, the banks ARE able to do simply for the fact of protecting their interests and asses?

  6. [email protected]

    This is shaping up to be the mother of all fuck-ups. Just wait and see how many “I TOLD YOU SO’s” will eventually come out the woodwork, expounding their superior investment acumen.

  7. CornflakesMEMBER

    I am beginning to doubt it will happen. The bubble just keeps getting bigger and bigger but nothing seems to burst it. Maybe this bubble is made out of something that can’t burst? Does it always take this long? I guess Greenspan said “Irrational exuberance” in December 1995…. and it wasn’t until March 2000 that things when bang there…. (oddly enough it was in March 2000 that I attempted to start a dot.com start up in a pub).

    • Me too. Maybe something else is going on that we just can’t see. I’m kinda old – normally with proper bubbles it genuinely is a complete blindside when it pops, upon which everybody crawls out of the wreckage and declares it was obvious. This one looks backwards!

    • DodgydamoMEMBER

      I’m with you Cornflakes. Been waiting over a decade and can’t bear to wait any longer.
      About to have to move house yet again because the landlord says so and CBF’d with renting anymore…

    • Normally the bubble pops when the credit dries up. Unfortunately with QE on full bore that doesn’t seem to be happening. Instead we wait for FIRE vampires to suck the productive economy dry, destroying employment and income, and in many instances leading to revolution when enough poor people get hungry. Of course when governments start loosing control of their population then there is nothing more distracting than starting a war to use up you excess people and cancel your foreign debts.

    • “I am beginning to doubt it will happen. The bubble just keeps getting bigger and bigger but nothing seems to burst it.”
      Choose your bubble popper.
      1. Donald Trump
      2. Hillary Clinton
      3. Chinese controls

  8. [email protected]

    The “UNIVERSE” has stopped expanding in Perth, SA, NT, Tassie and large parts of QLD. Try and flog a house in a mining town and see how you go. “ALWAYS GOES UP” will surely come to Sydney an Melbourne too, as day follows night!

    • Someone commented few weeks back that we are such a small economy in global context it is very easy to stimulate and prevent the bubble from popping. Powerful stakeholder can keep making small tweaks to the rules resulting in siginficant stimulus to the market. Just when you think this is the ceiling – rates start dropping, there is mention of QE, etc. And you get almost immediate effect.

      • Ireland currently has a population a bit over 6 million & pressumably less when their bubble burst. Wouldn’t the tweaks you speak of have been comparitively easier to stop their housing bubble bursting when it did?

      • Andrew WilliamMEMBER

        Ireland was an even smaller economy and they were hammered when their bubble burst with prices down 64% between 2008 and 2009

  9. Andrew WilliamMEMBER

    Ireland had mass immigration and 12% of their workforce was employed in construction…..sounds familiar doesn’t it?

  10. surely the talking head from Marshall Condon isn’t telling the truth. why would he? he’s encouraging Australians to start shopping?

  11. surely the talking head from Marshall Condon isn’t telling the truth. why would he? he’s creating hype to encourage Australians to start shopping? he didn’t look very worried.

  12. kiwikarynMEMBER

    How long before these apartment blocks look like Miami condos in the GFC, half empty and left to rot as not enough owners bothering to pay their body corp fees? Pools dont get cleaned, elevators dont get serviced, leaks dont get fixed.

  13. [email protected]

    I can assure you we won’t be too far behind the rest of the world where they went on a lunatical building spree, weather it’d be apartments of coal mines!