China’s most recent capital controls, introduced on the 1st of January, are having an immediate effect, with fewer Chinese buyers able to purchase property abroad. From London to Melbourne, Vancouver to Sydney, Chinese citizens are struggling to close property transactions in some of the world’s largest property bubbles.
International experts believe the drop in demand is expected to be worst felt in Australia, the biggest beneficiary of the capital outflow. According to Christopher Todd at consultancy firm Basis Point, Australia approved A$24 billion of real estate investments from China in the financial year ended June 2015, the latest figures available, making Australia by far the largest destination for Chinese buyers.
China’s currency has plunged to eight year lows on the back of a record braking capital flight. Its foreign exchange reserves has been slashed to $3.052 trillion, the lowest in almost 6 years. To help stem the tide, China further tightened controls on foreign exchange, a day prior to quotas resetting on the 1st of January.
In a statement from China’s State Administration of Foreign Exchange (SAFE), it said it wanted to stamp out money laundering and illegal overseas property purchases. While the regulator has left the quota of $50,000 yuan (A$9,600) foreign currency, per person, per year unchanged, it has significantly increased disclosure requirements. Chinese citizens must now pledge the money wont be used for overseas purchases of property, securities or life insurance. They must also give detailed accounts of what the money will be used for. Banks will now report any overseas transaction made by an individual exceeding $10,000 yuan (A$2,000).
Bloomberg reports on the despair:
“If it’s too difficult, I’m out,’’ said Mr. Zheng, 66, a retired civil servant in Shanghai who declined to give his first name to avoid attracting regulatory scrutiny. He may abandon a 2.4 million yuan ($348,903) home purchase in western Melbourne, even after shelling out a 300,000 yuan deposit last August. He’s due to make another big payment next month.
For Zheng, the decision on whether to walk away from his Melbourne property or risk breaking China’s foreign-exchange rules is fast approaching. He’s scheduled to wire another 800,000 yuan to Australia in late February to cover the rest of his down payment.
With the Lunar New Year starting today, an army of Chinese holiday makers are in the air heading for Melbourne and Sydney as local property agents prepare for the “golden week”. The agents are already witnessing a substantial drop off in demand. Many Chinese view property with a tour group, but only half the number of buses are filled this year. Ray White Balwyn director Helen Yan told the Domain, fewer Chinese tourists would be hunting for property this year. A positive to come from all of this – they will have more time to enjoy a real holiday in Australia.
Happy Chinese New Year.
» China’s crackdown on capital outflows sending shudders through global property markets – The Straits Time, 27th January 2017.
» China’s Army of Global Homebuyers Is Suddenly Short on Cash – Bloomberg, 27th January 2017.
» China Gets Strict on Forex Transactions to Stop Money Exiting Abroad – Bloomberg, 3rd January 2017.
If the Chinese are serious about stopping this capital flight, then this will be the ultimate test of how strong our housing market is.
Hint: It isn’t strong at all.
It won’t stop our money-laundering Chinese overlords. Their lust for Sydney-jing is too strong.
The ones that are cashed up don’t need to borrow .
In spite of these new restrictions the Chinese government are placing on money leaving the country, I still think these mainly corrupt Chinese communist party officials will find a way to launder their money out of the country.
When will this property bubble ever burst?, I know we on this forum have been talking about it for years now, but the Australian government at all levels (especially here in NSW), seem hell bent on keeping it inflated, whilst the rest of the economy goes down the drain. Our useless federal government keeps hitting us with slogans like “jobs and growth”, but what industries are going to create these “jobs and growth”? Manufacturing is all but dead, people are losing their jobs left right, and centre, and those people lucky enough to have a full time job are up to their eyeballs in debt.
I just wonder is it a matter of IF, this bubble will burst or WHEN?
The big issue here is the previous $50KCNY per annum limit had bugger all impact and the new $10K limit will probably be the same. One chart on this post shows an uptick in foreign purchases beginning just before the new limit was announced (Q3/16).
This suggests those with the inside word knew what was coming and might be getting nervous about further restrictions. But, those that have the means and will to do so, will get their money out of China. There are more rat holes in that system than your underground sewer. I’ll believe the Chinese Government are serious when heads start rolling and that includes those inside the CCP.
So I wonder what measures the government are working on to offset anticipated Chinese capital flight losses? Assuming they’re aware (which they are no doubt) that the inflation of Sydney and Mumbaiboune has been driven hard by this I’d suspect they’ve already got something in the wings, maybe they can go over 400 k NOM again post GFC style?’Maybe they could lift the FHOG to $50 k and give it $1 million celling , allow interest deductions on OO’s..plenty of firestarter left in her yet even though she’s pretty bloated and ready to blow!
Meanwhile the bread and circus of ‘supply issues’and tax distortions continues..whilst still relevant, no mention of the global bloating of property since 2014 by the Chinese.
Just imagine how much of the Australian property has been purchased with corrupt money laundering and fraud and the Australian authorities and banks don’t care. As long as the money keeps flowing into Australian property the better. The Australian regulators/govt have been asleep at the wheel. I guess the bigger the bubble the bigger the pop. The chinese are the biggest gamblers and speculators of all time. The idea that low property supply is a reason for high property is is only 1 reason. They deliberately do not tell the public that debts has skyrocketed into the stratosphere. Nobody talks about the massive debts to pay for a poorly constructed property of poor quality by global standards.
Well, here’s the governments take (NOM forward estimate)..
Welcome the students who are going to prop up the education export aka mining boom replacement.
NOM arrivals (‘000)
16 Jun 16 Sep 16 Dec 17 Mar 17 Jun 18 Jun 19 Jun 20 Jun
Students 129.0 130.6 129.1 133.5 135.3 146.3 158.6 181.1
457 33.2 31.2 30.9 35.0 37.7 41.4 41.5 41.5
I suppose they’ll all be looking for part time jobs too! Jobs Jobs Jobs! Meanwhile our wage growth is dying and unemployment rising, good job!
Given the forward estimates for Mumbaibourne and Sydney (and sticking in alignment with previous trends) about 75 % of them will end up in those two cities, just what’s needed.Perhaps their foreign families will buy property too!
I’m of the view that they the high end Government officials here are well aware that this fantasy will not go on but they have to keep it going because if they do not then they admit they are robbing their own citizens but the main reason is they know that the whole world is in uncharted territory and therefore anticipate an external event to unravel our Real Estate Market because we are so interconnected. Find alternative investments, I shake my head at people so desperate to prove they have made because they have a house, yet they will palm off their children to a shitty child care facility (or parents) who are suppose to be retired. Lets not forget the savings they pass onto their grocery bills and the rubbish they put in their shopping trolleys to facilitate the savings. Keep your house Australia, Id rather have my health and bring up my own children.
@3 – The problem is getting your money out of China, not borrowing money.
@5 – The quota is still the same. The change is increased oversight. Residents now have to sign a pledge and banks will now report all transactions over $10k.
How does the Property Council Survey work? Am I correct, we are still in January 2017, but they have already reported the results for the March 2017 quarter? “Over the past three months, what portion of total residential sales have been to foreign (non-Australian resident) buyers.”
@ 9 John my sentiments exactly.
What price does one pay in the end really?
Its amazing when you step back and look at the amount of shame this nation projects on those that don’t pursue a mortgage on mortar.
Meanwhile, only 6 years ago, renting had merits because interest rates were near the average.Yet today, the average ‘dreamer’makes a 25-30 year debt commitment based upon a 3-5 year interest rate cycle.
Combined with the loss of wage growth and rising unemployment (casualisation included) she aint looking too good ‘down unda’.
But enough with the ‘pessimism’..no more talk on median income to price multiple, NOM Ponzi’s or FIRB shortcomings, lets not even mention the coalitions denial of good policy, CGT concessions, stalled credit uptake, Negative gearing distortions or the up and coming bank bail out/in which will see the end of fiat globally. What is happening in the cricket, what snags you bringin over for the barby…might upgrade the waverunner, don’t really need it but got the equity.
If you have ever heard of Bitcoin you will know that it is impossible to stop capital flight from any country.
you lot might want to see this,australias in all debt is over 6 trillion dollars and americas in all debt is 20 trillion…dumbs dumbs will say well america is in a lot worse position then australia but then when u consider how much each person owes – oz population is only 24 mill and usa is 320 mill………..250 000 EVERY AUSTRALIAN OWES
COMPARED TO 60 000 EVERY AMERICAN OWES——–MATE WE ARE FINISHED…we are toast
more then 4 trillion is too do with housing
@Karl, “you lot might want to see this.”
What is the alternative? Wait until debt hits 8 trillion and it collapses, or maybe 10 million? Won’t that be worse!
Our economy is no longer sustainable. Even Scott Morrison, who is said to be a better economic leader (because he is liberal, not Labor), can’t get a handle on government debt:
Scott Morrison to lift credit limit as Australia’s debt hurtles towards $500 billion – 29th Jan
Why not? Because if they bring in an once of Austerity, the heavily indebted system simply will collapse. No two ways about it.
I don’t want to see it, but we have no choice. Either do it now, or let it get bigger and suffer a even bigger challenge. There is noting to be gained by kicking the can down the road (unless you are a polly, waiting for the next term so you can throw Labor into it*)
(* Interesting to note the amount of Liberal PMs now supporting negative gearing cutbacks. I suspect internal polling may suggest they won’t win the next election. Just demonstrates how big the issue of housing affordability is)
Oh yes. These are the figures that very few people understand.
As I’ve pointed out before, private (consumption) debt is in reverse, business debt is stalled. It’s only mortgage debt that’s growing.
What this clearly says is that the average aussie, by choice or force, is no longer borrowing for consumption/lifestyle etc.
Business has NO faith in the economy: Just look at what’s been going on in corporate Australia lately, many jailings, sacking, bankruptcies etc…..
But mortgage debt, although slowing, is still growing: The average punter still believes housing goes up………..
It’s ridiculous, borrow to the hilt to get into the market, complaining it was too hard to enter, but then expect it to carry you to prosperity…. Does this make sense to anyone else???? Even not knowing the numbers this is a stupid idea.
I still see on forums people dying to tell you there is no bubble, people aren’t trying hard enough, no one sacrifices to buy a house yada, yada, yada…… (yes, seinfeld style yada, yada, yada)
So yes Karl, let’s sit back and pat each other on the back for being worth $300k each or some number like that…. Just let’s not talk about what we owe… LOL.
If you work in an office, just look around you, count the number of people, then divide by four: That’s how many millions of dollars you lot owe!!!!!!!!!!!! There’s only 11 million of us working or something like that!!!!! So now we’re talking $500k + per worker!!!! In fact, it’s actually worse, because how many have kids or old parents that aren’t working!!!! So who’s gonna pay their portion of the debt ??????? ….. really???
LOL What a total disaster.
Even the governments know we are toast: Budget cuts EVERYWHERE, even whilst they have more revenue income than ever!!!!!
There’s a reason they allow everything to be sold off shore::: Because we are broke! Financially broke, and broken as a society.
10 years ago, I heard people talk of Australia becoming third world in 3 generations, but sadly I expect it much sooner.
With no manufacturing to speak off, tax laws that make capital leave the country and a falling currency, one HAS to ask, when the collapse comes, and with Trump leading the world into a trade slow down, HOW will Australia buy the neccessities to keep our society functioning???
How will we buy petrol??? ($3 a litre easy)
How will we buy food??? (depending on the measure used we are net IMPORTERS!!!!!
How will we get jobs back??? (are you going to risk remaining capital to employ AUSTRALIANS, hell no)
Who will rebuild our infrastructure (telecommunications and electrical grids)???
I expect pain by 2020, and all out strife by 2030.
Your average millionaire property baron has NO comprehension of what hell will rain down on this country.
Those who’ve positioned themselves properly will reap the rewards of their conservatism.
Why, oh why, do I depress myself on a Monday morning like this …. 🙂
@ 13 Jamie, Glad to hear because I don’t think I am being irrational at all. Lets not forget that banning cash is coming and accelerating. Australia has certainly lost itself, shame shame shame. My wife got her second passport last year and I will be applying this year, I hope not to leave but it is nice to have choices.
Anyone noticed the media lately mentioning the use of debit cards over credit cards?
Private Credit growth (ABS and RBA) has been trending negative for 12 Months now…Are we really supposed to believe that people are instead spending their savings? lol what savings!?
Also, I find this interesting, Bank housing equity is $780 Billion , total assets are $10 756 Billion. Assuming I’m looking at the right metrics the leverage is 14:1…from memory Bear Sterns blew up around 35:1. Were not quite ‘Sub Prime’ frenzied yet.
Just perusing latest RBA finance stats.
Personal credit is garbage, negative again. Investors, up again, Owner Occupiers, dying hard.
We know what this means, TIME FOR SOME MORE FHOG!
Here’s my prediction, sadly it goes against what I want and everything I’ve said to date.
FHOG extended and increased.
Owner Occupier loans to go to 6-8 % p.a.
Investor loans to track at around 6 – 12 % p.a.
Relaxed business lending to bump Business credit to 6-10 % p.a.
If businesses can hang in there whilst personal credit stagnates our Household Debt to GDP will go to circa 140 % by mid 2018 or so, maybe more. Interestingly , this figure decreased in our most recent quarter to 123 % down from 125 %. Banks will fix this though through the above mechanisms, mainly housing.
Household Debt to GDP deflation back to 80 -90 % triggered primarily by lack of consumption, stalled wages and unemployment.
I hope I’m wrong, yet I hope for the next few generations I’m right.
I don’t see household debt dropping significantly: It may drop a handful of points, but when housing falls, those debt levels will remain the same, while GDP could drop ~20-30% over a few years (maybe more) so the debt to GDP ratio will then explode skywards.
Then the lack of consumption will really kick in.
I’m not convinced a FHOG will be as successful as the last 20 years efforts have been. There’s a lot of chatter about bubbles and housing just not worth the ridiculous sacrifice, plus the casualisation of the workforce etc… And this is why first homeowner loans are not flying off the shelf.
first homeowners are just not confident enough to get into the market, is $X,000 really going to change that, when median houses in Sydney smash past $1m??????
As for relaxed business lending: Haha, that’s not gonna happen. Been listening to the radio lately? Here in SA we are getting bombarded by private loan sharks lending to business: With upto 95% of businesses not surviving 3 years now, banks are not going to lend at all: AT ALL.
I’ve witnessed firsthand people going down uber dollars on ordinary run of the mill businesses leaving a huge trail of debt: Rent, workcover, tax bills, supplier bills, utility bills, often in the hundreds of thousands of dollars: Banks are just not going to go there.
I’ve been a bear on housing for years, not without justification: It should have been contained years ago: But now this is a multi-generational wealth destroying event. There are families who will be torn apart completely.
save yrselves and keep gold or silver…what financial advisors dont tell you or dont know is that no one and i mean NO ONE in world history has ever lost money buying physical gold and silver in the long run…but i can name u at least 20 people i know personally who have lost their life savings buying houses starting with my own brother who i had to help to take thru bankruptcy
“Society Is Screwing Over Young People On Housing While Telling Them It’s Their Fault”
That’s the title of article below:
@ 23 matty, Good point on the ratio.I still think it will come down though, I cant see it staying up when there is a sell off.
I too agree with you on the FHOG , BUT, I think people are stupid enough and WILL still go in hard.Its the dream down unda, there’s no liming what one will do for a piece of mortar…at any cost, mortar, mortar, mortar.
I see your point on the business loan front but figured alot of businesses are backed by homes which will have extraordinary levels of equity, wouldn’t this help?
This situation with the uptick in investor loans is just ridiculous and shows how desperate the banks are, what are APRA going to do? If investors cap at out at 5 % p.a the banks wont make any other profit.Also, plenty of investors classifying their loans as OO and taking out IO term, how do you even track this any more.?
The media grip onto it here but make only a one lien mention on the absolute hammering private credit is taking.
“Business credit also had a solid December, with lending up 1.1 per cent for the month and 5.6 per cent over the year, while personal lines of credit slipped marginally to be down 1.3 per cent in 2016.”
slipped marginally? its been stalled for over 18 months, that’s not significant!!??
This could change the whole equation: https://mishtalk.com/2017/02/03/end-of-fed-independence/
Not saying anything is going to change, but if it does it will be seismic.
Matty is this activity referring to Bail in’s and SIFI /G-SIB?
Don’t really know: All I know is if Trump want’s the FED to put USA first, well, be ready for a hell of a ride. The FED is global lender of last resort. Even our Aussie banks borrowed hard off them in GFC.
So it will be three fold:
A: They’ll up the interest due on loans already made
B: They’ll stop lending to foreign nations
C: This will strengthen USA $$$ and kill other currencies
Currency devaluation is another of the great myths. ‘Oh it encourages exports’… Yeah, maybe in a country with an export sector, where as someone like Australia, with the lowest manufacturing sector in the OECD, will just get smashed by ‘inflation’ as all imports cost more….
I just don’t see any good news for the foreseeable future.
Oh, and I have from pretty good sources, 4th quarter GDP is flat, or -ve again…. Yeah, that’s right, we’re in ‘technical’ recession.
Of course those of use who work in the real economy have know this for the last few years….. Outside construction and finance Australia is stuffed.
Sounds horrible but this country needs a shake up, no young person can afford to buy a house with the average income at the moment, but with the RBA having their meeting today regarding the cash rate, they will probably leave it where it is and not raise interest rates to keep this housing bubble from going pop, im over it. Need to move overseas to pay cash for a house.
Interesting Matty, and I agree, we’ve been in recession for years, the population ponzi and housing stimulus has kept us out of recession on paper, I get the feeling she’s almost out of steam though.
Looking forward to Q4 quarter results.
The Ducks starting to line up….
Elected Imbecile can’t even count.
Not so fast! This bubble can still fit a lot more air in it. Sadly, I think Unconventional Economist is right: http://www.macrobusiness.com.au/2017/02/expect-massive-first-home-buyer-bribe-years-budget/
Yep, the oh-my-god-Trump-in-power-shows-‘mericans-are-not-pure-do-goders-we-are-stuffed-down-under crowd is starting to panic – perfectly predictable, but they always loved cheap bets such as sucking up to the US of A was – we’ll just outsource governance to them and only occupy our selves with selling houses in Australia.
This shows the risks, especially the grand one of it all happening at the same time – and after so much luck, the chance of it crashing at once is only higher:
@Sarah – who works in debt collection & commented in October last year on the Delinquent mortgages thread…
Sarah, if you’re still reading this blog, love to hear an update from you amid the current talk on generic debt help lines counselling property investors. Any uptick in business for you in the last few months?
I don’t see us getting out if this. Now the RBA has even hinted at it the panic will ensue. Demand will vapourise.
Yes, still keep my eye on this blog from time to time.
In my line of work all I see and hear each day are stories of stress and suffering from people.
Today as an example,I dealt with:
* 2 clients in tears
* 2 Bankruptcy claims
* 2 Part ix debt agreement claims
* 5 Hardship applications
* 2 Early release of Superannuation applications
* 10 Payment arrangements
The rest were mainly able to pay their outstanding arrears within the week, probably around 4 customers.
Some days I come home so drained from hearing all the hard luck tails from delving into their situations.
All I can say is, I’m not surprised the counselling services are overwhelmed with calls.
Everyday people are going to the wall financially. But so many instances I see could have been avoided if they’d done some research before signing, in many cases multiple loan contracts.
What’s the saying – Hope for the best, plan for the worst!
Many people think they’re immune from anything bad going wrong in life. This is a big mistake because they take uncalculated risks and wind up in a huge mess.
The insanity escalating . A 4 bed old terrace in Rozelle on 250sq.metres land area . $3 million .
Sold last weekend . Twenty years ago maybe that place was worth 300k .
If only incomes had gone up tenfold in this time frame , but no they’ve actually remained the same or gone down (cause hanging on to a part-time job these days is an achievement).
So the winners are the banks the agents (dealers) and government (stamp duty) and the losers are 99% of people in debt that are our children trying to compete with the investor elite .
Oz has become a land of great divide and no middle ground .
Our leaders don’t really give a ‘ intercourse ‘ about us and the youth of this land . They’re to busy counting the money to notice . Hungry demons .
“The risk of global market volatility, and indeed economic shock, remains heightened” – CBA chief executive Ian Narev
And here we see it: it’ll be ‘macro’ factors that will tip this, nothing to do with our funneling of every bit of wealth possible into a housing bubble.
Thanks for the reply. Can’t say I’m surprised. I work in public service organisation in Sydney & currently my department is laying off workers (20% of work force). My co-worker was made redundant a week ago. My partner who worked in a separate private enterprise was made redundant in Jan 2016, her co-worker who inherited her work load is currently being made redundant. Just heard last night my cousin who also works in private enterprise has another 6 weeks or so until he is made redundant….My point being, all these job losses in my sphere of experience are happening in Sydney. The supposed epicentre of ‘Jobs and growth’. I can hardly imagine what it’s like in states like WA & QLD, which I understand you deal with, where the employment market is described euphemistically as ‘soft’ in comparison.
I agree with many comments however just wanted to add;
-Canadian bubble has just burst in Vancouver
-Melbourne is being hit with massive land tax bills Jan 2017.
-Fed govt has no money to bail anyone out.
-This is not a “real” economy and is unable to create jobs while this bubble continues.I have been looking at Eastern Europe and can see what a “real” economy looks like.
-Foreign Students were allowed to buy property on a student visa courtesy of the Labour Govt so only have to get off the plane and sign up for a property. Many high school students have property portfolios.
-The education industry is just a front for migration and property buying. If they can’t buy property the numbers may drop affecting our universities who house and teach 10,000’s of these property buyers.
-Electricity price hikes (VIC) are going to bite mid year as well as land tax. No one will have any cash in Melbourne.
I can see everyone here has been expecting this for a long time but I think so many things are lining up to make it happen this year 2017. I agree with Gavaroo, the “ducks are starting to line up”.
George W Bush
“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home”
Sub Prime Mortgage Meltdown
Andrew Broad, Member for Mallee
“What a government needs to do is make sure a person who wants to purchase their first home can get into the property market”
RBA the latest tool used spruiking high house price in propaganda machine.
I repeat , this building boom in apartments is not for the local youth of this land ( children of the elite exempted ) . In Gosford , at least an hours drive north of Sydney , a 1 bed unit $450k and
2 bed $650k . If you borrow , and most people do , that’s $1.2 million and $1.6 million over a thirty year debt minimum IF interest stays at constant 5% . Can you imagine the chaos if they go to 10%
( in late eighties they nearly hit 20% , but houses were 200k close to Sydney CBD ) .
This is an investors market only and the young locals are not part of the equation .
Thank you labor and liberal brothers and sisters for sacrificing our children’s future for personal greed and profit .