Chinese offload Aussie apartments as home economic crunch hits: Robert Gottliebsen

Meriton targeted Chinese buyers amid an influx of apartment purchases in both Sydney and Melbourne. Picture: Supplied

The crisis in China is much deeper than the current protests over Covid-19 clamps which are causing deep unease in world markets, and Australia is emerging as one of the countries directly impacted.

Over the last decade in both Sydney and Melbourne, the mainland Chinese have been the major indirect buyers of apartments, but many are now being forced to sell.

It is now estimated that around 20 per cent of the apartments beneficially owned by mainland Chinese have either been sold or are likely to come onto the market.

In many cases, while the nominal owner is a member of a local Chinese community, it has always been recognised that behind the majority of the previous Chinese buying of Melbourne and Sydney apartments was mainland Chinese money.

The finances of many of those mainland Chinese families have been hit in three ways. Those that played the cryptocurrency game suffered losses, but the clamps imposed by the Chinese administration on cryptocurrency trading saved Chinese families from what would have been catastrophic losses.

Meriton apartments in Dee Why. Picture: Adam Yip

But they were not saved from the well-documented apartment debacle in mainland China. A large number of the Chinese who bought apartments in Australia wanted assets outside of China, just in case the communist Chinese government made life intolerable. But they also took advantage of the high-leverage deals available to buy apartments in China.

They now have debt liabilities to fund Chinese apartments where the builders are unable to complete the contract.

Many of the Chinese who bought unfinished apartments in China have stopped paying their required debt instalments, but this is a dangerous course in a totalitarian state.

Others have continued to pay their instalments, hoping that in time the Chinese government will enable the builders to fund the completion of the projects.

Many never anticipated completing the purchases and planned to sell quickly and make a trading profit. But the slump in apartment values makes trading close to impossible, so other family assets, like Australian apartments, must be sold.

A large number of the Chinese families who are selling Australian apartments do not want to sell, but they have no choice.

Few have made profits on their Australian investment and many have incurred losses, but until they were forced to sell, the low returns or losses were offset by the security of knowing they had an asset outside of China.

The Covid clamps that are being now imposed on the Chinese population come on top of the property catastrophe. The combination has almost certainly played a hidden role in the Chinese protests.

In Sydney the biggest marketer of apartments to the Chinese was Harry Triguboff’s Meriton group, and he pressed the Chinese to rent their apartments, so building up a large apartment-renting business.

Accordingly, the Sydney apartments being sold have an income stream.

In Melbourne there was no Meriton-style operation and the Chinese often bought apartments and left them vacant.

Local Chinese perform the necessary occupancy tasks to avoid the taxes on unoccupied dwellings.

The Chinese were not major buyers of apartments in Brisbane or the Gold Coast.

In both Sydney and Melbourne, the Chinese were happy to buy relatively small apartments, while in Sydney the tenants were often students.

In a strange twist of fate, the Chinese selling comes as new forces are emerging in the Australian property rental market.

Harry Triguboff’s Meriton has targeted Chinese buyers. Picture: James Horan

The bureaucratic visa mess in Canberra made it very difficult to bring skilled people to Australia, but the bureaucracy is starting to be cleared and builders in Melbourne tell me that Irish and other overseas tradespeople are arriving, which is assisting in overcoming skills shortages.

But when overseas skilled people come to Australia they can’t find accommodation and builders and other employers are being forced to subsidise high rental costs.

The apartments that Chinese are now selling are smaller than what many skilled overseas people had in mind when deciding to come to Australia, And their city locations are too far from suburban employment.

While it is possible to build apartments in Melbourne, the scandals and rules in NSW mean that it is almost impossible to build apartments in Sydney unless developers had obtained approval in past years.

The NSW government’s stamp duty rules helped first-home buyers but in the apartment market, the NSW government in conjunction with local councils have put so many restrictions on the development of apartments that even if the land was priced at nothing, apartments can’t be built at a cost that allows a profit based on current market conditions.

Accordingly, the largest apartment builder in Sydney, Meriton, will complete apartments where permission was granted under previous rules, but then will cease building apartments for the mass market in Sydney.

Meriton will concentrate on future new development in Queensland.

The NSW effective ban on mass-apartment development will take another 18 months to two years to impact new starts.

In both Melbourne and Sydney, there is a strong market emerging for luxury apartments with high levels of security as wealthy Baby Boomers sell their family home and seek luxury apartment accommodation as a replacement.