As China and Australia trade barbs on coronavirus and racism, property market joins list of casualties

The fraying relations between Beijing and Canberra are likely to worsen the Australian real estate market that relies on Chinese money for its recent vigour. For a start, the cost may be to the tune of A$715 million (US$494 million) by one estimate.

The row over a host of issues, from the coronavirus pandemic to barley trade and alleged racism, will keep Chinese investors and students away from the market, analysts said, in a major blow to the Australian economy, as they account for the biggest source of inflows in major cities like Sydney and Melbourne.

China earlier this month warned its citizens about the risk of racial discrimination in Australia, a veiled retaliation against its trade partner for supporting an international probe into the origin of the coronavirus. The US has also questioned the source of the virus, first reported in Wuhan in central Hubei province.

Asians, led by mainland Chinese and Hongkongers, were the biggest buyers of Australian real estate, amounting to US$135 billion, over the past decade, especially in Sydney, before they slumped to a 12-year low last year, according to portal Juwai IQI.

In education, Chinese students made up 28 per cent of the 758,154 international students in Australia at the end of December 2019.

The investment figures could weaken this year, with the market already hurt by lockdown and travel restrictions in Australia, according to Georg Chmiel, executive chairman at Juwai IQI. The immediate crunch has been felt in the student accommodation sector.

"With 75,000 students missing from Australia or 13 per cent of last year's total, the Australian property sector could lose A$715 million in property-related income this year," he estimated. "There are about 80 per cent more Chinese students in Australia than there are of the next largest nationality, which is Indian students."

Because foreign students have not been able to return to Australia to continue their studies, landlords in the Sydney neighbourhood of Waterloo are losing A$5 million per month in rental income, he said.

"Waterloo is just one of the 17 suburbs in Sydney where foreign students typically make up more than 10 per cent of the population," he added. "The total rental shortfall that Sydney landlords are suffering is likely several tens of million dollars per month. You can probably triple that to include Melbourne, Brisbane, Perth and the rest of the country."

Australia has been blowing hot and cold in its embrace of Chinese private capital. Once welcomed, they began to attract deeper scrutiny after a string of high-profile acquisitions of trophy assets by tycoons.

They included the acquisition of a 700,000-acre cattle station by billionaire Ma Xingfa for A$47 million. A mansion overlooking the Sydney harbour was sold to Huang Jiaer for A$60 million. Since 2016, Australia has limited foreign buyers to owning newly-built properties.

"Sydney had the third most robust property market in the world, after Manhattan and Central London, due to the constant demand from Chinese buyers," said Sam Barnett, founder of Pearllargo development company. The falling out means "Australia has bitten the hand that feeds it," he added.

Barnett has an interest in seeing the market prosper. His company and Shanghai-based Macro Capital Limited have a A$18.2 million resort project in Western Australia that will solely target Chinese tourists, he said.

Sydney-based Crown Group is watching the widening rift between the countries with caution. However, it has not deterred the developer from marketing Australia's appeal as a quality education destination.

Four of its projects are being developed close to the centre of Sydney, home to three of some of the best-ranked universities in the world. Australia remains a safe place for Chinese students despite Beijing's advisory, it said.

"We're cautious, but not concerned," said Iwan Suwito, co-founder and chief executive officer, who said mainland Chinese and Hong Kong-based buyers remain a significant portion of their buyers. "They will still continue to buy and be stronger than before."

Other analysts say that the impact of politics will not be long-lasting. The luxury end of the market, for one, is also likely to be resilient.

There is little evidence to suggest that the deteriorating relations will have a negative impact on property sales, said Robert Burgess, head of international business advisory in Melbourne at Charter Keck Cramer.

"I do not think the current situation between Beijing and Canberra will impact the top end of the Australian property sales for the rest of the year," said Sydney-based Ken Jacobs, who manages his own property agency, an affiliate of Christie's International Real Estate.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.