Chinese developers have a massive advantage over their Australian counterparts. Is it unfair? Maybe. But it’s radically reshaping the Australian property landscape.
It’s kind of hard to cut through all the hype and hear-say about the influence Asian, and particularly Chinese developers are having in Australia.
There’s a shortage of cold hard data, but no shortage of opinion.
The general consensus seems to be that they’re having a huge impact, and it’s only getting bigger. I haven’t seen anyone out there saying it isn’t true, so I guess that’s what we’ve got to go with.
And I’ve picked up something in a few places in the last week or so: and that’s the report that Chinese developers are paying just 1% finance.
They pushing ahead with huge, multi-million dollar developments, and paying just 1% interest on their project finance.
As I’ve written about before, China is awash with liquidity. Since the end of the 90s, China has been hoovering up US dollars to try and keep a lid on their currency. Now they’re sitting on a mountain of cash.
But that makes them a little edgy. The US economic house-of-cards has looked a little dicey more than once in the past ten years. It feels like the wheels could come off any second.
And so now the Chinese are trying to cash out. They don’t want to sell dollars and buy Yuan, because that will push their currency up and they’re still massively reliant on exports to drive growth.
So they’re looking to turn fictional money into tangible assets. There are citizen schemes to encourage individual gold buying. And of course, there’s real estate.
A massive, unprecedented, global land grab.
Think about it. 1% finance. Inflation is running at 1.6%, so it is literally giving money away.
You might wonder what the Chinese banks are thinking, but this is China. The government’s hand is in everything. Super-cheap money is really just an extension of Chinese foreign policy.
But 1% finance gives Chinese developers a massive advantage.
Not only that, but in Australia, marketing costs normally add another 5-10% to the budget on larger scale developments.
But the Chinese are working on entirely different scales. Global developers like Greenland have developments on the go across the developed world, and a massive network of potential buyers in China.
I’ve heard some people say that Asian developers will sell as much as 80 or 90% of their stock to non-Australian residents.
Marketing costs for a company like Greenland are in a completely different ball-park.
And all that means that Chinese developers are 10-15% ahead of the game before they’ve even begun.
And that’s before you take account of the fact that the Chinese do ‘big’ well. They’ve cut their teeth on massive high-rise developments. Even the largest projects here are just middle of the road by Chinese standards. There’s economies of scale involved in larger projects and the Chinese know how to exploit them.
And with an edge on scale and finance, Aussie developers just can’t compete.
And so a lot of them have just stopped trying it seems.
Business Spectator was reporting that property agent Balmain Group recently hosted a lunch for 30 or so of their regular clients in Victoria, many of them old-time Greek and Italian developers.
None of them are buying.
In fact many of them are selling. Chairman Micahel Holm says, “Some are selling part of their land bank. They simply think of a number, double it and put on a development profit.”
Apparently, many local developers are selling their land for nearly as much profit as they could expect were they to develop the sites themselves.
They might only make 80% of what they’d make doing it themselves, but there’s no risk. So why not? Just flip it on to an Asian developer and go fishing.
And I’m talking some big names here.
Grocon sold the former Carlton & United Breweries site in Carlton, Melbourne, to a Chinese company for $60 million.
And Goodman sold an industrial park in Erskinville in South Sydney, a large potential residential site, for $350 million to Hong Kong’s Golden Horse Holdings – reportedly the highest price ever paid for a residential site in Australia.
And of course this land grab is pushing up prices. Development sites have risen by up to 40% in the past two years.
This is huge!
Where will it end?
It’s tempting to say the Chinese are crazy and this bubble will have to burst soon. But the Chinese developers know what they’re doing. They’ve got a lot of runs on the board now, and they know how to turn a deal.
What’s more, they’ve got the full weight of the Chinese government behind them. It’s an officially sanctioned spending spree, and if any of it goes sour? Well, there’s still this mountain of useless cash just sitting around.
Don’t worry boys, we’ll bail you out.
I think in 20 years we might look back at this point in time and say that this was when the internationalisation of Australian property really began.
In the mean time though, property has a rocket under it. And importantly, the balance of Australia’s housing stock is steadily shifting towards units.
To me, that means that there’s going to be an on-going premium attached to our beloved detached housing stock.
Buy time I reckon…
… in case you missed the signals coming out of China.
Vesta says
Best to put me onto some Chinese developers then, so I can flip my land parcels and take the 80% odd profit and eliminate the development risks 🙂
Any Chinese takers out there?
I’m all ears 😉
Jonathan Bill Kueh says
looks what they have done to Malaysia south and Singapore. They come and go. now the price of the property keeps dropping. but they have make the money anyway.
Anon says
The bottleneck is political. In the end, Chinese people are going to expect more meaning and purpose than making money. The people will seek freedom. Then they will, I hope, settle into a modest 2 or 3% GDP like the rest of the free nations. They are scared of regime change, but if they don’t change it will mean another revolution anyway.
jota6689 says
Give me chinese capitalism over the outdated crappy us/uk/aus variety. Quite simply most if aus is terra nullis. And since the illegal convict occupiers have done little with it give the Chinese a go. Better they occupy and develop peacefully than do a UK style occupation by force
AW says
You have a very short memory when it comes to the ethics of the chinese government when it comes to human rights and the environment…
David says
Yes – it’s obvious in Melbourne. Our skyline is changing and it reminds me of the view from the airport train I used to take from Hong Kong airport into HK Central. Lots of vary drab and boring buildings going up devoid of character.
I have no problems with this globalisation of our real estate markets, I just hope the powers that be in our planning regulations do their best to ensure we still have a nice place to live. There are just way too many shoeboxes without enough carparks, natural light or views being built that will look terrible in 10 years time.
v botuyan says
20+ years more and let’s see what will happen to Australia when the resources get depleted. By that time, people would be scampering for resources in the vast lands of Russia, and the Antarctica snd Arctic continents which could have warmed up enough to melt the gigantic “ice scapes” ready for exhaustive resources explorations, not to mention exploring outer space (the moon, Mars and beyond) for newly found resources deposits and new community establishments. The future is endless.
Vicki says
just wondering where to get that 1% finance, any links for that report sharing? thanks
Jac says
Yes the next one in Southbank Melbourne is launching soon, over 1000 units reaching a scary 108 storeys. They have marketing teams throughout Asia who contact their database and book space in hotels over a weekend to present and viola, majority sold. KL, Singapore, Hong Kong, Shanghai, all the big cities, once they’ve done that they’ll go to Australian buyers. It works very well for them.
Geoff says
Interesting to note that the Japanese were buying properties in Australia, in the 80s, at 2 and 3 times the going price and then their economy collapsed. There are still some of those sites sitting around as they stripped them of buildings and just left them. Their agents would just buy sites without any research or due diligence happy in the thought that the values would
just keep rising, no matter what was paid. The only difference is that China has a Communist Government, which I find rather ironic, however time will tell.
Sowrabh Behl says
Yep, buy when china is strong… but if US dollar starts going tits up then chinese will also slow their spending… and then selling… and then that will bring prices down hard..