Loss aversion angst grips Chinese developers as Australian housing market fades
2019-04-17
Mainland Chinese developers that arrived
just as the Australian housing boom began to fade may have to choose between
cutting their losses on investments that have turned sour or waiting for a
recovery, analysts said.
Which route they take would depend largely
on their size and financial firepower, with the option of taking losses
upfront by unloading land to other developers seen as appealing to smaller
companies, while those that bought into the market near the peak in late 2016
are in a position to hold on in the hope that the market will eventually
recover.
“We understand that at least half a dozen
Chinese developers have put their land holdings on sale to other developers or
land bankers, with sites that can accommodate at least 300 units,” said Carrie
Law, chief executive and director of Juwai.com, a real estate portal for
Chinese buyers.
“They paid too much for the land and know
too little about building. It’s cheaper to sell now and lose a little money
than it would be to go forward with construction and lose much more money.”
After a six-year run of growth, the housing
market in major cities in Australia entered a correction phase last year as
banks tightened lending and the supply of homes increased. Demand from
overseas buyers also tapered off, particularly after Beijing restricted
investment in overseas property.
Bottom of
Form
On a nationwide basis, prices retreated 1.9
per cent in 2018, while Sydney has seen a sharper decline of 14 per cent from
its 2017 peak. Credit ratings agency Fitch forecast in January that Australian
house prices would fall 5 per cent this year.
Last year mainland developers and investors
channelled A$1.3 billion (US$929.2 million) into the Australian residential
property market, reflecting a decline of 34.5 per cent from 2017, according to
Knight Frank.
Chinese developers and investors bought 31
per cent of sites sold in Australia last year, slightly down from 33 per cent
in 2017.
Slowdown
in Australia’s property market won’t dampen Chinese investor interest
Greenland, Poly and Aoyuan are among the
biggest Chinese players in the country.
Poly acquired three projects last year,
though in February it put a 49 per cent stake in its Sydney Harbour project on
the market.
“Those Chinese developers who bought
development sites before the peak in the market in well-located positions still
can sell at a premium price, even if they choose to sell these sites because
they can’t wait,” said Michelle Ciesielski, director of research &
consulting, Knight Frank Australia. “Many Chinese developers want to hold onto
their projects until the market recovers, especially those who bought at the
peak of the market.
Residential and commercial projects in
Sydney on August 3, 2017. Photo: AFP
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In a sign that they plan to be around for
the long haul, many Chinese developers are diversifying by increasing their exposure
to offices and lower-density residential projects as well as to commercial
property refurbishments.
Many are also much more willing to embrace
local expertise such as using advisory firms, a shift from the early days when
many trusted local agencies less and preferred to go it alone.
“There is a great disparity among Chinese
developers. Some have built a strong local presence with a localised model,
established staffing with a mix of local and international experience, and
intent to expand fast. They are acquainted with local rules and do not differ
much from local players,” said Darren Xia, head of international capital
markets, North Asia, at JLL.
He added that larger Chinese developers
might be able to grow their presence in Australia at the expense of their
smaller rivals as the downturn gathered pace.
“Despite the current downturn, we’re happy
to see Chinese developers go global, not just to Australia. Globalisation can
help them to overcome the limits of China market and learn best practices of
each market,” he said.
Chinese developers and investors bought 31
per cent of land sites sold in Australia last year, slightly down from 33 per
cent in 2017.
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