Chinese apartment buyers cooling on Sydney and Melbourne

Chinese property buyers, Kathy Zhou (right) and Nicole Shi at Cremorne Point in Sydney in 2018. Picture: John Feder.

The trade tussle between China and Australia has taken a dramatic new turn. Chinese buyers of apartments in Sydney and to some extent in Melbourne have suddenly reduced their buying.

Early in the year, when COVID-19 was ravaging China, there was a sharp reduction in the Chinese apartment buying. But in March, as the crisis eased, Chinese buyers returned in significant numbers in Melbourne, Sydney and Brisbane, despite the threats from the Chinese ambassador. While the buying is being executed by locals, they have close links to those on the Chinese mainland.

But suddenly, as the crescendo of controversy over Australia’s role in calling for an independent investigation of COVID-19 intensified, the Chinese buying was curtailed. Last night the owner of Australia’s largest apartment owner and builder, Meriton’s Harry Triguboff, confirmed that the Chinese buying had fallen off.

No one can be sure but it would seem that this is a third warning shot for Australia following the hold up of meat from four abattoirs and the 80 per cent tariff on Australian barley.

But apartments are different because the buying is driven by individuals, often linked to local Australians. Significantly the buying has not stopped, but reduced.

That April buying also led to optimism for the long-term future for Chinese students studying in Australia. The latest fall adds to extra risk in our tertiary student sector.

First home buyers hit

The contraction of Chinese buying comes at a bad time because Australian buyers, and particularly first home buyers, our now only token players in the market.

At the start of the year and they were strong but the jobs impact of COVID-19 has been severe.

While Meriton is continuing with projects already started, the great inner city apartment building boom in Melbourne and Sydney is now well and truly over. To restart it will require a whole new approach by regulators and state governments to slash the costs that they impose. There are some signs that NSW has finally woken up but it has taken far too long.

Meanwhile the value of apartments has fallen markedly and COVID-19 restrictions have substantially reduced the ability of Australians to pay rent at the levels they once had.

In many areas of Australia, led by Sydney, rents down about 20 per cent in apartments and many cottages. If rents stay down, this will build up selling pressure from those with highly leveraged investment properties who are currently benefiting from banks not foreclosing.

Many Australians have been unhappy about the upward pressure the Chinese buying has exerted on dwelling prices. The withdrawal of Chinese buying plus the multitude of other forces is causing banks to forecast a minimum of a 10 per cent dwelling price fall. Such a fall will cause those Australians who bought at the peak and have high mortgages to suffer.

A troubled relationship

As readers will be aware I have a different view about the China situation to the current politically correct version of events.

First prime minister Scott Morrison was right in sticking to his guns in demanding an international inquiry into the causes of COVID-19. Despite pressure from the Chinese, his global initiative will have increased our international reputation. Paradoxically this is confirmed by the somewhat irrational and angry outbursts of the Chinese Australian ambassador.

But what’s now important is that we are much more careful about how we handle the Chinese situation. We are dealing with a country that would defeat the United States in a sea war according to a series of “eye-opening” war games carried out by the Pentagon.

And China is a country that now recognises this new military power so is becoming increasingly aggressive towards its neighbours.

For Australia it’s one thing to demand an independent investigation of the COVID-19 origins and another to constantly demand China become more democratic and treat its population differently.

Past ALP and Coalition leaders have performed badly on this front and we are carrying the legacy.

The relationship between Australia and China is different to that between China and most other countries in our region.

China depends on Australia for iron ore metallurgical coal and to some extent gas.

Longer term the Chinese are greatly concerned at their inability to grow sufficient clean food to feed their population.

That’s why the barley and beef actions may be temporary, although in the Chinese eyes we have to be “taught a lesson” for our “ lecturing ” that started way back in 2008 so more measures are likely.

We should not forget that China has had issues with Australian meat labelling for a long time.

China looks to Australia and New Zealand as important food sources and, because of our excellent handling of COVID-19, we have become unique in the world

If they are allowed, Chinese students and longer term Chinese tourists will want to come to Australia and they are clearly still interested, on a personal basis, in buying property in Australia.

We are dealing with a more dangerous China than the one that existed five to 10 years ago. Accordingly we must be more professional in how we handle China and it’s really important that we learn the lessons of World War II. We need to be a reliable supplier to boost our bottom line and we must not retaliate by duplicating the supply bans that were placed on Japan. But we can also learn from World War II and have much higher degree of local manufacturing and that requires efficient production of energy as well as lower emissions.