China in Decline

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The Shanghai stock market has dropped 38 per cent from its mid-June high. Worried about its economy, the People’s Bank of China has cut interest rates with more likely to come. 

We all know that the Australian and Chinese economies are joined at the hip, so does that mean that if the Chinese economy weakens, ours’ does too?

From my current experience, when it comes to China and our property markets, there is an inverse relationship.  That is, as the Chinese economy weakens, there will be an increase in overseas investors looking to invest in Australian property.

Recently I arranged two investment loans for a Chinese investor.  The first was a loan of $1.2m for an established property, the second was for a loan of $1.76m for a brand new property in Sydney’s new Barrangaroo development.

And this client is looking to buy a commercial property on the Gold Coast.

I have had quite a few conversations with this client over the past few months and it is clear to me that she sees Australia as a safe haven for investments.  Declines in Chinese markets are likely to prompt a flight to quality as investors look to park their money somewhere safe.

China’s population is around 60 times that of Australia.  I am not arguing that a hypothetical collapse in the Chinese economy will lead to a tsunami of investors looking to buy property in Australia.  However, it is likely to create a significant level of demand which will put a floor under any pessimism that our domestic economy may face.

Today, for Australian property investors, China offers some confidence rather than the negative headlines we see in the media.

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