Australia China relations – what is the risk to the Australian housing market? (Ep.106)

In this week’s episode, Dave, Cate and Pete take you through an episode dedicated to this question posed from one of our listeners:

“Australia’s economy is highly dependent on China, do you see immediate risk in the housing market should China reduce dependency on Australia’s supply chain?” 

1. Update from the G7 summit
2. Foreign investment and Australian property
3. Why is Australian residential property so attractive to foreign investors?
4. Cultural based dwelling preferences
5. Iron ore – mutual dependence on trade between China and Australia
6. Transitioning to clean energy sources

Market insights

• Housing market consumer sentiment moves into negative territory
  For the first time in a year, the Westpac Melbourne Institute Consumer Sentiment index on whether now is a good ‘Time to buy a dwelling’ has dropped below 100 and is now in pessimistic territory. This is the fifth monthly decline in a row, dropping 7.1% from May to June and the index is now 27% below its November high of 132. The shift in sentiment is mainly caused by rapid price rises over the last 6-9 months, supported by fringe factors including: increased fixed rates from lenders, with speculation of more increases to come and various government incentives coming to an end. This index generally is a forward indicator of markets, however it could be 3 to 6 months before we see any impact on the housing market, if not longer. The hope is that this signals the possibility of more sanguine value growth without the requirement of intervention from APRA placing extra limitations on borrowers. The property buyer isn’t upset at the prospect of slightly relaxed competition levels either.

Resources:

• 12 reasons why now is the best time to refinance
• Property Cycle Management – why now is always the best time to buy if it suits your personal economy and you have a long-term property plan
• TIME IN the market v TIMING the market (Ep.19)
• Special video – Navigating a successful purchase in a hyper competitive environment
• How to determine market values by using comparable sales (Ep.81)
• Preparing for auction #2 – Cooling off period, finance approval, negotiating terms and auction quote ranges (Ep.78)
• How our mortgage strategy helps us to hold properties
• How to succeed with Property and Create your Ideal Lifestyle
• Mortgage Strategy 101 – YouTube video series.

Show notes:

1. Update from the G7 summit
   The Property Planner takes you through some of the communiques and resolutions formed in the 47th G7 summit, held on 11-13 June. The G7 is a meeting of the 7 largest Western democratic economies, including Canada, France, Germany, Italy, Japan, UK and the US. Australia and three other nations of Japan, South Korea and South Africa were invited to attend. The G7 pledged to tackle China’s market-distorting economic practices which are currently affecting Australia’s exports, as well as authoritarian actions in relation to Hong Kong.
2. Foreign investment and Australian property
   Australia is the fourth most popular residential property market after the US, UK and Singapore with ultra-high net worth Asian cross-border property investors. The Property Buyer shares key data showing that the overall market share of foreign buyers fell to 4% in the fourth quarter of 2020 in relation to new property. This is the lowest result since NAB started tracking the data in 2010. Harsh taxes were introduced in 2015-2017 for foreign investors, and for some local markets, this had a severe impact on asset prices. However, the taxes haven’t had the devastating impact that many people feared would happen.
3. Why is Australian residential property so attractive to foreign investors?
   The Property Professor shares key insights from a special dissertation written by one of his students on the appeal of Australian property for Chinese investors, who sheds light on some of the key aspirational, social and financial motivations held by Chinese buyers.
4. Cultural based dwelling preferences
   The trio discuss how current dwelling preferences have been shaped by Australia’s European heritage and discuss the expected changes from the current and future generation of Asian migrants to Australia. The Property Buyer shares some of the key preferences from Asian buyers, some of the positive influences on Australian housing design and layouts to modern day, and offers a hot tip on how you can gain an edge if you’re finding that you’re missing out at auction.
5. Iron ore – mutual dependence on trade between China and Australia
   Whilst the political environment between China and Australia may be tense at the moment, it is irrefutable that both nations depend on each other for their economic well-being. The Property Planner shares critical insights into Australia’s exports of iron ore to China, and why it’s unlikely that any other competitor could fill Autralia’s place in the next 5 years, and possibly 10 years.
6. Transitioning to clean energy sources
   Australia’s dependence on wool exports up to 1965 show that our nation is no stranger to re-invention. In the 1970’s we moved to wheat production as our main source of exporting revenue, later followed by coal and only recently has iron ore become our greatest export. There is plenty of opportunity to produce clean energy from mining metals used for batteries and the production of hydrogen for fuel. As an example, the most important use of lithium is in rechargeable batteries, which will only increase in demand and Australia is already the world’s top producer of lithium. Did you know that Australia produces the 5th most nickel in the world and 6th most copper in the world, but has the second largest reserves? We certainly back Australians and their ingenuity to make this transition and continue to be a prosperous nation into the future and lead the transition to clean green energy and reducing our reliance on any one particular trading partner. Australia’s land-to-asset ratio as a country proportionately to our population is clearly a significant advantage that we should not take for granted!

Gold Nuggets

Peter Koulizos – The Property Professor’s Golden nugget: the market is not at the top, it’s a great time to refinance, interest rates aren’t going anywhere and buy yourself a good property as soon as you can afford it, rather than waiting to save up for the dream home. 

Cate Bakos – The Property Buyer’s Golden nugget: we still have more questions that we didn’t get to cover, one of them is about our trading relationship with China and the potential impacts to the property market. Stay tuned for a podcast on this topic.