As China looks like it might sneeze, are the rest of us about to catch a cold?
It’s easy to get caught in the ups and downs of our major trading partners and the impact that they could have on our markets. To get a first hand understanding of confidence and the level of activity on the ground, we thought it best to send one of our own over there to get a feel for things.
Ben Weeding, one of BuySide’s leading property investment advisors, took a trip to Hong Kong, Macau & Shenzhen in late January to gauge sentiment and talk to some key partners in the area. The trip was timely, given recent stock market movements and concerns over global growth, headed up by China, and his report gives a good understanding of what is happening ‘on the ground’.
“Despite being an expat of 9 years to 2014 in Tokyo, London & Singapore, and visiting Hong Kong many times, as well as Shenzhen a little under 10 years ago, this trip was eye-opening to say the least.
Every time, I go to HK, I see the city becoming more cosmopolitan and now certainly more expensive. My visit to Macau was my first and going by the ‘bling-bling’ fit-outs of the casinos and hotels, it is evident that there has been a significant amount of money which has passed through here over the last 2 decades.
Shenzhen was mind blowing! It has been one of the fastest growing cities in China every year for the last 3 years and it certainly has its place in Asia now with most buildings and the infrastructure being all shiny and new. It’s technology and start-up industries are burgeoning and it’s 11 million inhabitants are all about business!
Shenzhen in 1980 vs now
Here are a few things I took away from my observations and conversations with the locals:
• The Chinese love Australia and want to do business with Australians. This may already be evident from the recent ChAFTA agreement and the demand for listed shares of company’s such as Bellamy and Blackmore’s, highlighting all that is good and organic from Aust/NZ. There is now, however, a clearer focus on a movement to a consumption driven model in China, and Australia’s services industries are set to benefit!
• China GDP growth at 7% is now worth more than 10% GDP growth 5 years ago! The absolute value of Chinese GDP is double what it was in 2009, currently at $US10.8Tr. With this in mind, don’t be fooled by the media hype that downplays growth rates as “the worst in 25 years”. They are still growing strongly in absolute terms, and there is plenty of investable money in the system!
• Australian expatriates have a unique opportunity with a weak AUD to repatriate some money home for investment (in residential investment property of course!), and to take advantage of significant tax advantages available. Most either don’t know about these tax advantages or they are waiting for more downside in the AUD.
• Of the Aussie expats that had bought or were looking to buy residential property, the Sunshine Coast was a surprising winner. A retirement home post their stint in HK/China, was obviously the clear reasoning here.
• I was approached with more interest in commercial property rather than residential from high-net worth foreign nationals and fund managers. With higher yields and significantly higher foreign investment allowances from the Australian Government now in this space…this did not surprise me! The risk/reward profile may have shifted recently also for these investors, given; volatile stock markets, the ease of doing business in Australia, the AUD move, and more certainty around the Australian economy. NSW and Queensland are the key markets here emphasised by jobs growth in both states.
• Of those foreign nationals that were looking to buy an off-the-plan property in Australia, Melbourne was the most popular city that was mentioned. The city continues to be highlighted as the “Most Liveable City in the World” according to the EIU and 4th best “Quality of Life in the World”, according to Monocle.
In summary, I am less concerned about recent global stock market machinations and the shift in GDP drivers from China and its impact on Australia. At this point in Australia, GDP growth holds stable at the high-2% level, business confidence is on the rise, employment data has been better than expected and inflation remains under control. Aussie bond markets are still pricing in flat to down interest rates for 2016 as well – all positive data points for property markets in a transitioning economy.
Our recent Australian Property Outlook – 2016 highlighted a focus on areas in Australia with affordability, yield and jobs growth, and we have no reason following this trip to change our view.
If you wish to discuss anything regarding this commentary, or you would like to enquire further about how you can take advantage of the property markets, please don’t hesitate to get in touch.