What impact will China have on Australian property?
Will the downturn in the Chinese economy impact Australian property prices? The simple answer would be "yes" but the issue is not so straightforward.
There are a variety of Chinese investors buying property in Australia and a downturn in the Chinese economy (and stockmarket) will affect these investors in different ways.
First, there are the middle-class investors who are looking to buy an investment property in Australia.
They generally have one or two properties in China and are just starting to consider buying overseas. A downturn in the Chinese economy will see a significant drop in the number of these investors.
Second, there is the middle/upper class in China who are looking to buy either a holiday home in Australia or a property for their child to reside in while they are studying here. A downturn in the Chinese economy will see fewer of these purchasers.
Third, there are the rich and super-rich who are independently wealthy and wish to diversify their wealth overseas.
They could be more likely to buy property in Australia, as experienced investors are quite comfortable with buying assets overseas and realise that there are better options to create wealth than leaving their money in Chinese real estate or equities.
In addition to the different types of Chinese investors, the currency exchange rate will also play an important role in the attractiveness of Australian property.
Even though prices have been increasing in Australia over the past three years and it has made it harder for Australians to buy property, the falling Australian dollar has actually made it cheaper for Chinese investors.
At the moment, the Chinese government is guiding the yuan higher as the local stockmarket is falling. The growing difference between the Australian dollar and the yuan will make Australian property even more appealing to Chinese investors.
Taking all these aspects into consideration, the downturn in the Chinese economy will impact Australian property prices.
Overall, there will be fewer Chinese investors buying property here, which will put some downward pressure on prices. This will be more evident in Sydney and Melbourne where Chinese investors are already active but there will be virtually no effect on property prices in the other capital cities or in regional areas.