I was out for yum-cha the other day, and broke open a fortune cookie.
“the coming year will see a solid improvement in yields”
Thanks fortune cookie!
That’s what I love about China. They don’t seem to have the same cultural cringe around making money that we tend to in the West.
“To get rich is glorious.”
That was Deng Xiaoping’s catch-cry that turned China down the road towards capitalism back in the eighties. Since then, there’s been no looking back.
Can you imagine Julia Guillard coming out and saying “C’mon everyone, let’s put in the extra yards. It’s glorious to be rich.”
No of course not. She’d get panned by the softies for being too materialistic – for being out of touch with our beloved Aussie battlers who are noble, honest…
… and poor.
If you ask me, I think it’s one of the greatest cons the landed gentry pulled on the peasants – to make them believe that it was honourable and noble to be poor. To aspire to anything else was wicked.
And the rich gentlemen eating cucumber sandwiches down at the country club laughed themselves stupid.
But somehow, the Chinese have shaken off the shackles of ridiculous piety, and hats off to them.
And now, the interesting thing is that this reincarnated Chinese mercantilism is finding it’s way to our shores, and making those poor, righteous Aussie battlers, rich.
We all now about the mining boom, and how China is buying everything we can dig up out of the ground and put on a ship. And paying us handsomely for it.
But did you also know that Chinese investors are driving a boom in Australian property – particularly in the apartment sector?
And I’m talking residential property here. This isn’t another case of Japanese investors pouring billions of dollars into Gold Coast hotels and golf courses. I’m talking straight down the line residential property.
The word is that Chinese and Asian investors are snaffling up huge numbers of apartments and inner-city properties in the capital cities, often straight off the plan.
Here’s some numbers to turn heads:
According to property researcher Kevin Stanley, Asian developers have spent more than $1.1 billion on potential sites in the past three years.
There’s development applications in on all of these sites. There are 55 separate projects, bringing 2,000 houses and 19,000 units to market in Melbourne, Sydney, Brisbane, Gold Coast and Perth.
These developments have a collective value somewhere north of $10 billion.
Yep, it’s big money.
And it’s going to have a huge impact on the market. Those 19,000 units are 30 percent of the 60,000 units typically brought to market in any given year in Australia.
Asian demand is also having a huge impact on the existing stock, particularly in popular suburbs or near key infrastructure like train lines.
But hang on a second. What’s going on here?
The media keeps telling us that the property market’s soft. CBD apartments are supposedly a ‘wasteland’. Building a Great Wall of Apartment Towers in Melbourne is nothing short of crazy.
So what do the Asian investors know that we don’t?
Well let me give you the goss’. The ferocious Asian appetite has four key features.
First, Asian investors are backing Australian property. They’ll be very well aware of just how well Australian property’s performed in the past 20 years, and they’ll be very clued in to just how exciting the prospects are over the short to medium run.
They’re probably all big fans of my blog. I’m big in China.
At the very least, the Asian media probably doesn’t have the same death-wish for Australian property that ours does.
Secondly, they’re backing the Australian economy over the long term. They’re keen to get their money out of China, and park it in a nice, safe mature economy like Australia’s.
It’s a diversification strategy for the long-term. And with Australian property delivering such stellar yields at the moment, it’s a no-brainer.
Third, Chinese money is patient money. Australian banks really tightened up their loan standards after the GFC, and are very quick to pull the pin on projects that fall a little way behind.
China, with an accommodative monetary policy and a growing shadow-banking sector, is awash with money, just looking for somewhere safe and sensible to end up.
And they know residential projects are a solid long-run bet. They’re much more willing to let it ride than Australian financiers.
And finally, the Chinese are masters in the art of land-banking. If you look at a lot of the places they’re purchasing, it’s in growth areas and along train lines. They’ll ride it out for a few years, and then when the market’s right, they’ll put in a development application, and make a motza out of it.
So what’s the take home message?
First, I think a lot of us could take a few pages from China’s little red book. They’re playing with confidence and know that Australian property is an excellent bet – even in the short term.
Secondly, the wall of money out of China has parallels in the US and in Europe. The global hunt for yield is on and I don’t think Aussie property will stay off the global radar for long.
Finally, we’re not sophisticated land bankers yet. I’ve talked a bit about this before so watch this space. I’ll try feed you a bit more info on it over the next little while.
But stick with me. I’ll make us “gloriously” rich.