THE end is not nigh for the local property market if Chinese investors pull out of Australia, according to a panel of experts speaking at the Australian Property Institute’s conference.
The API Capital Markets Breakfast moderated by Property Funds Association CEO Paul Healy heard from a panel including APN Property Group non executive director Howard Brenchley, SG Hiscock & Company director Grant Berry and AustralianSuper senior investment manager – property Christine Phillips.
The panel also discussed about the new game changer for the Australian property market.
The panellists said Australia remains an attractive destination for other foreign investors.
Inbound Chinese capital has been a fairytale for the Australian property market with local vendors cashing in their assets for substantial premiums, such as Phileo selling a 363ha Wyndham site to China’s third largest developer Country Garden for $400 million – a significant premium to the book value of $120 million.
At times the great wall of money did not show signs of slowing and for the last two years, Chinese investors were the top players in Australia.
However last week the Chinese government’s State Council cemented new overseas investment rules, putting real estate on the restriction list.
APN Property Group non executive director Howard Brenchley said if the Chinese government switches the tap off, there is always a possibility of history repeating itself, like the Japanese investment in the 80s and 90s.
“When we look back at the 80s and 90s with Japan, where it was in a similar position to China now. Japan had the largest pool of foreign reserves in the world and needed to put that money to work.
“They came to Australia in the late 80s, probably exacerbated the bubble that was occurring in the Australian commercial property market at that time, and when that bubble burst they went back somewhat poorer,” he added.
“That seems to be what is happening with China… it is a difficult one to understand, if that tap is turned off, and that is a possibility, what impact will that have on the market.
“They have been to some extent underwriting the residential markets… and that seems to be diminishing now. Also in the commercial and the development side, they were very strong players. We’ll see what happens there,” Brenchley said.
AustralianSuper senior investment manager property Christine Phillips agrees that whilst there is uncertainty, she added that Australia remains an attractive destination.
She said Chinese capital is not the only source in the world.
“Our assets here are core trophy assets and are tightly held, even in the worst of the GFC, none came on the market.
“It is a very difficult market to get into, so if the Chinese investors weren’t here, I still think there is a significant pool of capital ready to invest,” Phillips said.
“There used to be a time where there was premium to invest in Australia but that is now gone.
“There is a deep pool of equity and capital looking for assets. China is the not the only one,” she added.
“But we are seeing some bizarre pricing around the world with Chinese investors into London recently and the purchase of trophy assets at 3% yield as their first ever acquisition into the country, coming from nowhere, we’ve seeing these enormous acquisitions.
“So there are drivers other than financial at play and that makes it a very volatile situation,” she continued.
Wanda’s decision comes after it sold a 60% stake in its Australian projects, the $1 billion Jewel on the Gold Coast and $1 billion Circular Quay in Sydney, back to a company controlled by its chairman Wang Jianlin earlier this month.
Last month, Dalian Wanda agreed to sell most of its hotels and theme-park assets to R&F and Sunac China Holdings for $US9.5 billion.
Last week the Chinese government’s State Council issued new overseas investment rules, putting property and hotels on the restriction list.
The State Council said it would punish any companies that violate the new restrictions.
Prior to cementing the new rules, the Beijing had begun to put pressure on companies to wind back. Chinese insurer Anbang was ordered to sell the iconic Waldorf Astoria hotel in New York, which it bought in 2014 for US$1.95 billion.
Chinese outbound funds topped $US219 billion last year, according to Dealogic. However in the first half of this year, it has dived to $US64.2 billion after the government imposed restrictions.
Thomson Reuters data released last week recorded a 42% fall outbound capital from China over the year to August 14.
SG Hiscock & Company director Grant Berry said it goes back to not putting all your eggs in one basket.
“I wouldn’t want be building an investment thesis from foreign capital coming in because it can be quite flighty and we all know that from the experience with the Japanese in the late 80s and early 90s.
“Just have your own mindset on what you think valuation should be, keeping disciplined because it is very hard if you are jumping at shadows,” Berry said.
Australian Property Journal
