Foreign Chinese priced out of Sydney property boom

November 2, 2015 admin Australian Housing, Melbourne Property Bubble, Sydney Housing Bubble 33

Foreign Chinese buyers may now be priced out of the booming Sydney and Melbourne property markets according to Real Estate agency PRD Nationwide.

In recent weeks, market players have noticed a gradual pull out of Chinese buyers and are racking their brains to understand why. The worrying pull out for property proponents, have led to a cooling market.

The PRD Nationwide Australia Economic and Property Report shoots down the notion that all foreign Chinese buyers are uber wealthy.

Asti Diaswati, PRD Nationwide’s national research manager told the Domain, “There’s this myth that foreign investors are all ultra-net worth, super rich and can afford penthouses, which is not the case,”

“I would say at least half to 60 per cent of foreign investors coming are ‘ordinary’ in the sense that they have a $500,000-to-$600,000 budget.”

The Sydney property market has seen annual double-digit gains in recent years and with a median house price now in-excess of $1 million, it is the world’s third most expensive property market according to investment bank UBS. Only Hong Kong and London now have more expensive property markets.

Real estate agents are now pondering who is left to sell too, with more and more auctions passed in. Australians have long been priced out of the Sydney market, with the Housing Industry of Australia suggesting last week that households now need to earn 1.74 times the average full time adult wage to meet loan repayments, despite interest rates being at record lows.

» Even foreign investors are struggling to afford Sydney prices – The Domain, 2nd November 2015.
» Sydney placed on global housing bubble risk list – Bloomberg, 1st November 2015.
» London, Hong Kong most at risk of housing bubble, UBS says – The Financial Review, 30th October 2015.
» It now costs $4,000 A MONTH to pay the mortgage on an average house in Sydney, and affordability is plunging across the country… – The Daily Mail, Australia, 31st October 2015.




33 Comments

  1. I’ve always said, of all the ratios, explanations, insanity etc. the one thing that will force a price fall is when they run out of buyers.

    Has that day come?

    Time will tell.

  2. My mate in 2007..
    “You gotta get a loan and invest. Work is for suckers. Property doubles in value every 7-10 years. In a decade I’ll have 7-8 rental properties. The new cars, the holidays, the $5000 fridge, the kids junk all payed by the growing wealth of the first home”. (ACT).

    My mate yesterday, 2015.
    Work has dried up. Complains about lack of overtime hours in construction. Is in arrears on electricity, rates, pool chlorinator is stuffed and water is green. 2 new vehicles 6 months behind on service and oil changes. Can’t afford Internet and any phone not work supplied is pre-pay. Wife now works nights in a nursing home to cover shortfall and loaths it. Shops at Aldi on a budget and can’t afford to commission an agent to sell the ONE Melbourne property.

    This guy is intelligent and does work hard. But I fear he is one of tens of thousands of such kind. This couple is 4 weeks and one job loss away from oblivion. Sad, but remember… I was the idiot..lol

  3. @ Patrick.

    No, not one of tens of thousands, but hundreds of thousands. There’s >1M negatively geared investors.

    It’s astonishing.

    I had to stop my wife (GF at the time) from doing the exact same thing 10 years ago. Her friends who did buy properties have high paying jobs, while not as severe as your mate, are in cashflow hell. anything out of the ordinary can’t be managed, credit cards with $30K on them, fighting for the shift and weekend work just to get the penalty rates…. Do they realise how stupid they look from someone who avoided all that?

    Staying debt free is so simple…. It’s now become enjoyable.

    While ‘investors’ are wondering how the hell they’ll get out of it.

    Here in Adelaide, the neighbour has tarted up his place. “Looking good” I tell him. “Goes on the market next week”…. “Your choice, or moving for work?”… After a few minutes of chat going nowhere, it comes down to the fact the company he works for is trying to pull off a turn around, last 18months been bad. The thought of a mortgage and no income is too much, so he’s out.

    MMM…. Investors who can’t afford to pay agents to offload houses, employed owners selling before they loose their jobs, listings down over 50% YOY….. Just how bad is the market? Like the top of a stock market boom, it only takes a few idiots to keep paying the high prices to keep the market up.

    But when they run out, it’s a price vacuum….

  6. @Patrick:

    Yep, everyone will treat you like an idiot on a short-term ego trip. I thought about 80% of people were suckered in but now after realising how many idiots at my work are suckered in I fear it is closer to 99%. What the Real Estate moguls, Media and government know is that a sucker will keep up the pretence even with holes in their shoes until the misery and utter disaster spills forth unannounced and unstoppable in a wail of tears.

    A couple of weeks ago there was an article by some officious journalist (is there any other type these days?) fear-mongering that Australians don’t realise how many billions the Chinese will suddenly flood into our housing market if the Chinese sharemarket crashes. Rubbish! Looks like they’re doing what most humans do: Tighten the purse strings when the crap hits the fan.

    Let’s see if we can predict the following:

    – House sales start to fall
    – Prices start falling out of desperation and panic to dump properties whose prices were “only ever going to go up”
    – Real Estate and their free spruiking Mum & Dad investors will make false BS predictions of property “only dropping 20%” to try and curb a buyers market from letting it drop to rock bottom before buying. I mean why would you buy a house that in 6 months time won’t be worth the loan you’re paying?
    – Blinkers will go on. The media will waste time reporting sport and forgetting Real Estate exists because the news is basically it’s over
    – Crap shows like “The Block” will have a final season
    – The whiners to the government about how they should help short-sighted, egotistical, tax grabbing investors will go quiet and throw the towel in.
    – Shock jock property and greed spruikers like 3AW will look like fools arguing against a growing nation of impoverished ex-property owners and bankrupt investors
    – Banks will ruthlessly throw families on the street to save themselves.

    Well, the last point is simply my penchant for chaos because fools don’t survive chaos, wise and adaptable people do.

  7. Interesting article, but I am a little confused. On one hand we are told that there are heaps of cashed up Chinese (most likely corrupt Chinese Communist Party members), wanting to launder their dirty money in Australian Real Estate, then we are told that they are pulling out, what’s the true story?

    Another thing, with Australia’s four major banks putting up interest rates, which appears to have the slowed down this property madness, then why are apartments going up everywhere? (especially here in Sydney), have these apartments already been paid for?, or are the developers hoping the property ponzi scheme will run forever?

  8. The last life straw for OZ housing has silently floated away from reach…

    Storm going on is an omen for the coming…

  9. @ Matty

    Had a GF from 2008 – 2013. Was paying off a post divorce property bought for $205,000 in 2000. Campbelltown, Sydney. Worked part time in the CBD for 20 hrs @$20 ph. The rest of income was child support when/if paid and family tax benifit A/B. She tried sucking me in via income and having me move in.
    As I’ve stated before, I’m lucky to live in a 3 Br unit on Sydney’s northern beaches. Was my grandparents, I pay my mother rent to cover strata fees only, I and my three kids get to live here for life with the understanding I’ll never own it.

    I bet now the ex-GF with 3 teens now has had the welfare cash dry up. Turning 40 next year without any formal skills, the interest on the low-doc loan must be hurting. Like I was going to work 80-100 hrs per week just so she could keep up with her mates…

    That’s when I saw the fever first hand, spoilt the relationship. Found this site!

  11. When will the 1.26 million Negatively Geared property investors realise the it does not work for them in a sinking market. It could get really ugly when 33% of Federal Politicians who own investment properties face bankruptcy and job loss. Karma has its own rewards.

  15. Patrick, are you sure you are Sydney, I am sure your mate works in my office in Newcastle.
    This guy bought a house twice the size of mine, plus a rental, new cars, boat, jet ski etc. Sold investment property to cover costs when first child was born. Eventually his wife ended up a stay at home mum as child care etc took nearly all her wages. Factoring in fuel, work clothing etc, plus family payments based on his wage and basically they were ahead on one wage.
    He then sold 1 car and all the toys when his o/time dried up and eventually they moved in with her mother after selling the house.
    I now own my house (22y mortgage), my kids have moved out and we are sitting pretty. Funny how fast a bank balance can rise when you deposit what used to be a housing payment. He looks at me like I did something dodgy, and even asked me if I won a lotto or something as he figured there was no way I could have done it on my one wage.

  16. @7. Master Yoda it’s because the builders have a slow ramp up (approvals, planning, acquiring finance, etc) and once they’ve started building they can’t stop without facing heavy fines and penalties due to commitments (financiers/buyers, suppliers, employees, etc).

    Over supply is the classic end game in a cyclical correction. As the peak builds, the number of builders in the industry increase, approvals and construction increase to meet increasing demand, then as demand tapers off the new builds continue to hit completion well after the fact and often off the plan buyers pull out, units cannot be sold or sold at a heavy discount or even a loss (since wages and materials tend to increase as well during a peak – everyone wants their cut). At this stage in the game the builders simply cannot finance another job and results in some going bankrupt and job losses across the industry. Sentiment can move so much faster than a five story building can be constructed and yet with this massive potential blind spot the people in the industry still think the money is easy when at the peak of the boom. This has happened time and time again in the property market history *shakes head*

    One such leading indicator that can help identify the end of a cycle is when building approvals hit record highs. We’ve been seeing that all through this year http://www.businessinsider.com.au/chart-a-third-of-australian-residential-building-approvals-are-now-for-high-rise-apartments-2015-11

  17. Oh and this one is especially interesting for Melbournites – it actually points out the aging population problem who prefer to live in empty nests meanwhile the next generation can’t afford family friendly homes and won’t buy into the tiny apartment glut designed for investors: http://www.sbs.com.au/news/article/2015/11/02/comment-root-sydney-and-melbournes-housing-crisis-were-building-wrong-thing

    It also points out that construction projects with approval and planned to start in 3-5yrs time is nearly double what’s currently being built today in Melbourne.

  18. ha ha Economy not quite gone to sh1t yet, but wait and watch investment sentiment turn when the looming recession that is due comes. That should tip it.

    Interesting links to this article. The usual hotch potch of contradictions from vested interests – RE agents of course putting a positive spin on things in Perth, Chinese investors looking to other states to invest but they don’t understand Sydney is the canary in the coal mine for national prices, the old couple claiming “trauma” because their house sold for 1.7M (283K above reserve) in these “difficult times”. lol

    This whole thing is one big giggle.

  19. Chinese buying isn’t slowing down because they’re being priced out of the market. Buying is dropping off because Chinese authorities have started enforcing a USD 50,000 cap on capital outflows from China.

  20. @ 19. Phil it’s interesting to watch the Chinese law adjust isn’t it? Just a year ago it was limited to USD 50,000 to come out of a single local account. So, the Chinese sent sums of USD 50,000 to trusted relatives to send it on to a central offshore account on their behalf. Now it’s USD 50,000 from a single local account to a single offshore account and the complexity increases as the self same family members not only have to receive USD 50,000 locally but also setup separate offshore accounts to send it to before they can consolidate it.

    No doubt the complexity would be thwarted if offshore banks simplified their account creation process or leveraged credit history from Chinese banks the way some UK banks leverage credit history from Australian banks (personal experience there – as an Australian it can be remarkably easy to create a UK account if you banked with the right Australian bank in the first place).

    So is this the end or just the beginning of tiptoeing around Chinese foreign policy? The mind boggles.

  21. @19
    I have read about that as well, but are the Chinese government actually enforcing this rule, and is that $50K USD limit per annum?

  23. TBH I think we shafted ourselves… the prices couldn’t have gotten this high without some people besting the previous owners with even larger sums of debt.

    Our culture’s combined obsession with owning our own homes no matter the cost and greed to capitalise on this is what got us here. Even more reason there needs to be a painful correction – this culture needs a serious wake up call.

    Sometimes I wish I’d been born 10-15 years earlier, then I’d have been at the right life stage at a slightly better time in history and avoided this nonsense.

  24. Yes they are enforcing it….its to prevent the so called capital fleeing and keeping there wonderful stock market from declining along with limits on short selling and selling off in general. There was word that the big money rollers can somehow transact through channels in Macau where they make cash advance purchases on expensive items, I’m sure you can work the rest out. I think it would be silly to assume that money can’t get offshore in other ways however I don’t believe it would be the average person that could succeed. Besides this so called real estate fetish the Chinese have here in oz are not for average properties anyway….such a full blown out headline, have not seen any Chinese where I am.

  25. On the issue of large development projects proceeding in a deteriorating market, most Developers/ builders are using other people’s money to finance the project. Typically mum and dad investors succoured in by financial advisors and glossy brochures promising big returns.

    When it all goes belly up, they lose and the developers make out like bandits after lining their pockets. The only cost to the developer is bankrupting their $2.00 company and ressurecting a ‘Phoenix’ company to start all over again and succour in the next lot of sheep.

  26. Nice BS article from Canberra Times trying to convince everyone that we’re only in for a “long period of stagnation” and that housing is only “22% overvalued”. Crystal Ball BS again!

    http://www.canberratimes.com.au/business/the-economy/house-prices-set-for-long-period-of-stagnation-barclays-20151104-gkr1x9.html

    The idea to convince buyers that a drop of 22% is the bottom and a good deal and sellers/investors that we don’t crash. The manipulation is obvious.

  28. But apparently we live in a free market.

    Is it still a free market if all of the speculators don’t think that the government will let the market fail? Is it still a free market if the bankers think they’ll get a bail-out if the market does fail?

    To word it another way, if the widespread perception is that the market will not be allowed to fail, (i.e. implicit support/bail-outs) is it still a free market?

    I would suggest that the prices are being set by the perception that the market is not free. Thus the market is not free.

    /end of rant.

  29. @ #23 S

    “Sometimes I wish I’d been born 10-15 years earlier, then I’d have been at the right life stage at a slightly better time in history and avoided this nonsense.”

    ahh, the sour grapes again… it doth run thick through this discussion. Suck it up Princess.

  30. Titty, you’re like Nelson from the Simpsons. No doubt when the market does crash and all these owner occupiers who are up to their eyeballs in debt are chucked out of their homes and the unemployment rate skyrockets, you’ll be telling them to “Suck it up Princess”. Don’t expect any sympathy when karma comes your way. People will point and say, that couldn’t have happened to a nicer guy.

    In reality you’re probably just a bored unemployed guy living in your mum’s garage tolling people for the lols.

    You make statements about the Tall Poppy Syndrome when you don’t seem to know exactly what it means? So to fill you in, it suggests some sort of talent. Property investors have no talent, just the steadfast believe that the “free market” is rigged and will never fail.

    The contradictions in your own statements and your failure to acknowledge them shows that either you just don’t care how silly you look or that you have no self-awareness. As I said, all the signs of an unemployed guy living in his mums garage.

  31. @ comment #30

    Well Davith, here’s the thing, I’ve never watched the Simpsons in my life, which is a pointer to the contrast between how I spend time (productively), and you dont (Xbox, TV, etc). So I think you just shot yourself in the foot in an almighty way, as you so often do here. Congratulations.

    If you think tall poppies are necessarily intelligent and have talent, you really need to get out more as the real world would show you otherwise. You probably think million dollar contract footballers are smart? Or Elle McPherson? Lol

    It’s amusing how you validate your own lack of comprehension by trying to imply your failure to understand concepts is somebody else’s fault. Don’t cover your ineptitude by trying to shift blame off yourself elsewhere, just learn some economic theory, old son. But I gather English is not your first language. Are you the only “strange” person from your village, Davith?

  32. Is there any real evidence this is even true? Why should I trust a Domain article which quotes a real estate agent of all people?

    It’s in their best interests to downplay the effects of illegal foreign investment given the new laws coming into effect on 1st December..

  33. ABC TV

    Galleries in Perth and the west facing bankruptcies and closures in the down turn “that they just didn’t see coming”, despite acknowledging that from 2000 onwards were boom times.

    Borrow, party, borrow. Then just put on a stupid hat and say nobody told us. Can’t wait for it to rip into housing in Australia’s east coast housing markets. I’m getting sick of the millionaire attitude from people with $1.2M worth of DEBT.

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