Could this be why the current boom has been so surprising?
So the housing bears are in the process of capitulating.
Now everyone is expecting house prices to boom.
The latest bear to roll over and have its tummy rubbed was NAB. They’re increasingly bullish about the outlook for the residential property market, and Sydney in particular.
NAB now expects house prices in Sydney to rise by 6.9% in 2023, compared with its previous forecast of a 2.2% rise.
NAB also forecasts 4.9% growth in Sydney house prices in 2024.
Pretty sensible. But if anything, NAB’s Sydney house price forecast actually looks a touch conservative.
I mean, according to CoreLogic’s daily index, Sydney dwelling values have already lifted 7.4% from their 7 February low:
Now, the provincial government is struggling to pay its debts, small businesses are not getting paid for construction projects and displaced residents are demanding overdue compensation and new housing be delivered.
One backwater province in China has half of the world’s 100 tallest bridges!?! You’ve got to hand it to China. When they build they build big.
But money has to be real or it becomes worthless (i.e you get massive inflation.) And for money to be real, debt has to be real.
And for decades China was running a ponzi economy. Borrowing against the promise of a fully-urbanised population in the mega-cities of the future.
But the tide is turning. The directive from the top is to pull back on credit. And that’s leaving cities and entire states high and dry.
But the problem is a financial one, which means the cancer gets to your financial organs i.e banks.
How to resolve municipal debt is perhaps the biggest headache policymakers face. Last year, borrowings from local government financing vehicles, off-balance-sheet entities municipalities use to finance their expenditure, ballooned to 57 trillion yuan ($7.9 trillion), or 48% of China’s gross domestic product, according to estimates from the International Monetary Fund. Already, some poorer provinces, such as landlocked Guizhou, are lobbying for bailouts.
Investors are starting to worry that banks might become the key instruments to absorb losses from LGFV debt.
We’re well and truly on the way to boom-like rates of growth.
And this has been surprising. It has left most economists gob-smacked.
(I just put that visual there to brighten up your work day. A gob-smacked economist. You’re welcome.)
And just why has Aussie property, and Sydney property been so impressive?
There’s a list of reasons. The fundamentals are impressive. But there’s an X-factor that nobody is talking about.
It’s looking like Aussie property is about to become a hot destination for Chinese money again.
Australia is still world number 1 for Chinese ex-pats.
Australia is the top overseas destination for Chinese property hunters in the first half of this year, according to real estate firm Juwai IQI’s latest ranking.
Chinese appetite for property Down Under topped their interest in other popular markets such as Canada, the UK and the US, the report said, based on the number of buyer inquiries received on the platform.
Chinese demand is likely to grow as international travel resumes, according to Kashif Ansari, group chief executive officer and co-founder of Juwai IQI.
A significant portion of real estate transactions are still dependent on buyers being able to go abroad, though outbound travel has yet to rebound to pre-pandemic levels due to limited airline capacity and expensive fares, he said.
Interesting. I didn’t know that travel in China still hadn’t fully opened up.
But there’s already money there on the streets. Back in April, The Age reported that “cashed-up Chinese buyers have re-entered Sydney’s property market with gusto”.
Peter Li, co-founder of Sydney-based Plus Agency, said recent housing developments across Chatswood in Sydney had sold to Chinese buyers.
“All the apartments that were still available after completion were sold to Chinese buyers”, Li said, adding that half paid with cash.
McGrath’s managing director and CEO, John McGrath, also said that demand from Chinese buyers is rising across all price points.
“We have seen a strong bounce-back, especially in the last three to four months”, McGrath said.
“A lot of people are wanting to park their currency in Australian dollars and in a safe and stable political environment”.
Yep. It’s not until you travel until you realise just what a stand-out asset class Aussie property actually is.
And it’s off to the moon we go.