Chinese capital controls hit Australian property market
Published 01/12/2016 | 02:30
Australian actress Cate Blanchett wanted to sell her home on Sydney's waterfront. The buyer who wanted it was from China. The trouble started right there.
Getting the money out of China proved impossible. The A$20m ($14.9m) price tag was far in excess of the $50,000 limit that the Chinese are allowed to convert each year due to capital controls. The would-be buyer couldn't settle, and the deal fell apart - one of dozens of failed sales affecting Chinese nationals in Australia, according to several realtors handling such transactions.
As Chinese citizens embark on an unprecedented buying spree of foreign property, the Blanchett case illustrates how such money flows have created an economic and political backlash, both in China and abroad. Nowhere is this clearer than in Australia, the developed nation most exposed to China.
Chinese authorities are stepping up capital curbs just as myriad restrictions in Australia have made mortgages tough to get for foreigners, putting buyers from China in a sandwich squeeze that could dent the property market down under. While that's not unwelcome for Australia's central bank, which is keen to take some steam out of rising prices, it shines a light on the struggle to digest China's cash exodus as it flows further afield into locations from Malaysia to Florida.
"People are finding it's very hard to get a mortgage here and then find they can't get their money out of China, and they're stuck," said Lulu Pallier of Sotheby's International in Sydney, who handles high-end sales to Chinese buyers.
Chinese authorities worry that outflows of capital, exacerbated by the declining yuan, could be a continued driver of devaluation. Estimated outflows in October reached $73bn, picking up again after having slowed mid-year, according Capital Economics Ltd.
Estimates from Bloomberg Intelligence show about $620bn flowed out in the nine months through September.
American President-elect Donald Trump's proposed tax cuts and infrastructure binge could accelerate such flows by revving up US growth and inflation and pressuring the Federal Reserve to lift interest rates faster than current market bets. The yuan has fallen almost 6pc this year to the lowest level since mid-2008.
"If the US rates rise and the US economy accelerates, it will be a matter of time when more capital leaves China," said Stephen Jen, chief executive officer of Eurizon SLJ Capital Ltd and a former International Monetary Fund economist.
Domestically, China's government is stepping up efforts to contain runaway property prices, with the central bank clamping down further on mortgage lending in areas deemed overheated, people with knowledge of the matter said.
Some lenders in those cities have been asked to suspend distributing new home loans, said the people, who asked not to be named as the change hasn't been made public.
Central bank branches in the cities communicated verbally with lenders within their jurisdictions, said the people, who didn't identify the affected cities or say how long the mortgage limits will last.
Banks in Shanghai were told not to increase mortgage lending from the previous month, another person with knowledge of the matter said. The central bank didn't respond to questions sent Monday via fax.
The latest mortgage limits come amid signs that China's central government is intensifying curbs to rein in excessive home prices, after relying on local authorities to tighten rules in some two dozen cities since late September.
Shanghai, which already imposed restrictions earlier this year, said in a Weibo post on Monday that it would start tightening mortgage loan policies this week while Tianjin has raised minimum mortgage downpayments for first homes to at least 30pc.
"China's policy orientation has been much less accommodative, and the theme for next year will be a year of bubble deflating," said Zhou Hao, an economist at Commerzbank AG in Singapore.
The banking regulator earlier this month told lenders in 16 cities to conduct checks on their mortgage lending, including in first-tier hubs such as Beijing and Shenzhen. Trust firms were also told to review any business related to home lending.
A wave of Chinese cities from trading centres to regional hubs had their largest price surge in history this year. Even after tightened purchase restrictions, Anhui provincial capital Hefei saw average new-home values rallying 48pc in October from a year earlier, while prices jumped 31pc and 32pc in financial hubs Shanghai and Shenzhen.
Local authorities have introduced home-market curbs ranging from raising downpayment requirements for both first and second homes, to ruling some potential buyers ineligible. The curbs mark a reversal of expanding stimulus in China, where outstanding personal home mortgages swelled 35pc to 16.8tn yuan in the year ended Sepember 30 last. More than 40pc of the nation's new credit went to property-related loans in the first nine months, the central bank said in its quarterly monetary report. Moody's Investors Service said last Tuesday that the outlook for China's residential property market in 2017 is stable, but regulatory risk remains high in light of the rapid growth in property and land prices.