Wave of Chinese interest returns to Aussie property amid interest rate hikes: Robert Gottliebsen

Chinese interest in the local property market is back with a vengeance. Picture: Toby Zerna

Property developers in both Melbourne and Sydney are detecting the beginnings of a fundamental strategic change among many mainland and Hong Kong Chinese families.

If that change is converted to action, it will transform the outlook for many sectors of the Australian property market. But it may also mean that the economic momentum of the post-Covid-19 restriction era in China will not last for as long as many in the market expect.

The China boom of the last quarter-century has been driven by property, rather than the consumer spending rates that have been behind growth in Western countries like the US and Australia.

Chinese families and large companies are now showing more interest in Australian property than we have seen for some years.

In the past, the majority of the Chinese buying of Australian apartments was concentrated among families seeking accommodation for their student children.

Chinese enterprises also made substantial investments in commercial property and infrastructure, but in recent times the deterioration in relations between the two countries and the credit squeeze in China caused Chinese to be sellers rather than buyers of Australian apartments and other property.

In addition, a series of Chinese developers came to Australia, failed and made an undignified exit.

This time around, it will be much harder for Chinese organisations and families to transfer money to Australia.

But the momentum for change in investment strategies comes from the next generation of Chinese – those in their late 20s and 30s.

I am grateful to the South China Morning Post (SCMP) for revealing what is being discussed around many Chinese family meal tables.

Most Chinese people born between the 1960s and 1980s invested a majority of their income in real estate.

But as one law professional explained to the SCMP: “We no longer think like the older generation”.

“We don’t think the properties our parents leave us will be worth as much as they used to be, especially in lower-tier cities. That’s the reality, whether you accept it or not. There will be fewer young buyers.”

The young people are acutely aware that China’s population growth has been slowing since 2016, and there was a “wake-up call” when the total population fell by 850,000 last year — the first drop in six decades. Young professionals say that the trend is irreversible.

But then the family conversations on property turn to an issue previously rarely mentioned. Most property in China is held on a 70-year lease to the government, and the young people realise those leases will expire in their lifetime.

Chinese families and large companies are showing more interest in Australian property following the pandemic. Picture: Toby Zerna

In Hong Kong, most of the leases expire in 2047 when Chinese now in their 20s will be in their early 50s.

It was always assumed the leases would roll over and that might still take place, but the severe Covid-19 restrictions and the tough line taken in parts of the technology sector (which is lowering productivity) has caused the next generation to be more concerned about the future of leaseholds than their parents.

They look at places like Australia where property is based on freehold land which can pass down through the generations.

And of course similar discussions are also taking place in the boardrooms of many large Chinese property owning enterprises.

By coincidence, as the family and boardroom discussions gather momentum, we are about to see an increase in Chinese students coming to Australia.

Hopefully, the ALP government will be much better at managing visa and red tape than the previous Coalition government.

The increasing student numbers will not only help restore universities, but provide labour and excitement in the inner cities of state capitals.

But there is a possibility – and only a possibility because of the currency restrictions – of very major Chinese investment in Australian property causing excitement in the property industry at a time when interest rates are depressing values.

If it happens, the next wave of Chinese investment will be larger than earlier waves and help restore the broken relationship between the two countries.

But it will also sit uneasily with our increase in defence spending and far more activity in the South Pacific.