Over the past couple of months, we have written frequently about the impact of Chinese money laundering operations on home prices in a couple of large cities around the globe. So far, the Vancouver market has seemingly been the hardest hit with homes prices collapsing over 20% in one month after the city passed a 15% property tax on foreign buyers on July 25, 2016 (see "As The Vancouver Housing Market Implodes, The "Smart Money" Is Rushing To Get Out Now").
Now, a U.S. based think tank, International Strategic Studies Association (ISSA), is warning that similar efforts to restrict Chinese investment in Australian real estate could send prices tumbling there as well. In speaking with news.com.au, Greg Copley, President of ISSA, predicted that Australia has about 6 weeks before real estate prices start to collapse.
"We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades."
"The urgency is, I believe, based on the fact that this is about how long it will take for the banks' policies to start switching off a lot of existing and planned contracts for Australian properties."
"The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. They’ve learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow."
“In so doing, they precipitate the market collapse but are less exposed to it.”
Real estate prices in Australia's largest housing markets have soared over the past couple of years fueled, in no small part, by demand from Chinese buyers looking for offshore locations to park cash. The Sydney and Melbourne markets have been the largest beneficiaries of foreign capital with real estate prices up 53% and 51%, respectively, since 2012. That said, based on data from the Australian Bureau of Statistics it looks like home prices in Australia have already started their descent.
Back in the spring, Australian banks began cracking down on foreign purchasers of residential properties due to concerns of increasing fraud and money laundering activites. New rules enacted required borrowers to be Australian citizens and/or legal residents with a valid visa. Per ISSA, these new restrictions on lending will likely result in many foreign buyers being forced to default on new residential properties. He argues that many foreign buyers placed down payments on properties under the old banking regulations but now won't be able to secure financing to close once the properties are actually completed.
Efforts to restrict lending, came in addition to taxes imposed by many Australian cities after foreign demand was found to be pricing local buyers out of many residential markets and killing the “Great Australian Dream” of owning property. In fact, Sydney prices have risen to record levels and currently rank second only to Hong Kong in terms of major cities with the world’s least-affordable housing.
With Vancouver and Australia now cracking down on Chinese money laundering operations the only question that remains is where the next bubble will spring up to take it's place?