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A good yarn versus the truth

By Monica Boyd

For Chinese nationals, this latest announcement means that leaving cash sitting in a bank account today is a negative wealth creation strategy. And with the local property market far from an attractive proposition, many people in the country’s vast middle class are looking further afield for places to invest.

The media has been having a field day recently over the lender initiated increases in variable loan rates. Alternative fun has been had with the “plummeting” Sydney auction clearance rates and speculation over bursting bubbles.

This week’s latest gloomy report suggests the lucrative Chinese investor segment is about to disappear, with Credit Suisse analysts saying the Chinese demand for global property could fall by 30% this year. While all of this speculation has been creating a wave of fear for local investors, several critical (and concrete) pieces of information appear to have been completely overlooked.

While it hardly made a splash in the papers, just a week ago, China again slashed its interest rate on deposits. The current yield is just 1.5% – a significant change compared to the 11% on offer in 1995. Of course, this is a clear sign that the Chinese economy is not faring too well right now, but there’s a broader implication for our property market.

For Chinese nationals, this latest announcement means that leaving cash sitting in a bank account today is a negative wealth creation strategy. And with the local property market far from an attractive proposition, many people in the country’s vast middle class are looking further afield for places to invest.

Despite the Credit Suisse report, which seems to be based on “reports” and “likelihoods” rather than concrete data, the reality is, the number of Chinese visitors to Australia is swelling rapidly. Sydney Airport statistics show a 13.5% increase in their numbers, just in October alone. Australia is seen as a democratic, safe and beautiful country, with excellent public health and education systems. And given the activity we’re continuing to see at inner city auctions, there’s no contraction of Chinese interest in quality Sydney property.

While we’re on the topic of truth, it’s worth considering the other two major issues we flagged earlier as being topical in today’s media. Firstly, the interest rate increases from the “greedy” banks chasing profit – peeling away the prejudice, we might remind readers that the Australian Prudential Regulation Authority (APRA) is actually behind the increases. They announced four months ago that lenders had until July 1 2016 to substantially increase their cash reserves to offset risk. At the time, the prediction was that variable rates would have to increase by around 80 basis points, so this latest shift shouldn’t be any surprise to any serious commentator.

Nor is the shift much of a concern – even at 0.8% higher than current levels, variable rates will still be at historic lows.

Secondly, while auction clearance rates in Sydney have dropped from highs of 90% to the latest result of 64%, the market is highly segmented. In the inner wast, the clearance rate is still above 80% and the minor fall is attributed to a seasonal increase in the number of properties for sale rather than anything dire.

In closing, Australians investing in Sydney property need first and foremost to remember the city is now firmly on the world stage, alongside places like New York, London and Tokyo. While our domestic conditions obviously play a part, ignoring the bigger picture may well see local property investors eventually priced out of the market, through waiting for price falls that never come.

Chris Wilkins
As seen on http://www.therealestateconversation.com.au/

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