While Chinese stocks have rebounded strongly in recent days, pushing the benchmark Shanghai Composite index higher by more than 10%, it appears some wealthy Chinese investors are not convinced that attempts to stabilise the nation’s stock market will succeed.
According to a report in the Sina English newspaper over the weekend, “realtors in Australia, Britain and Canada are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil” in Chinese stocks.
Sydney residential property, given its geographic proximity and relatively subdued price growth in yuan-denominated terms in recent years, appears to be attracting a proportion of these increased capital outflows.
Sydney realtor Michael Pallier said in the past week alone he has sold two new apartments and shown a A13.8 million ($US10.3 million) house to Chinese buyers looking for an alternative to stocks. “A lot of high net worth individuals had already taken money out of the stock market because it was getting just too hot. There’s a huge amount of cash sitting in China and I think you’ll find a lot of that comes to the Australian property market”, suggested Pallier, the principal of Sydney Sotheby’s International Realty, in the Sina report.
While inflows into China’s stock market have soared over the past eight months, it appears that some major shareholders have been using the surge in buying interest to reduce their own stock holdings. According to a research note from Bank of America-Merrill Lynch, major shareholders sold 360 billion yuan worth of stocks in the five months to May, nearly doubling the 190 billion yuan level seen during 2014.
Although some of these funds would have found their way into more liquid safe haven assets such as foreign government bonds, or ploughed back into Chinese stocks amidst the recovery seen in recent days, it is likely that some of the capital outflows have found their way into foreign real estate, including in Australia.
According to a recent report from Credit Suisse Chinese investors may pour as much as $60 billion into Australian real estate over the next six years, more than double the $28 billion figure seen since 2009.
Should the recent sell off in China’s stock market trigger a greater “flight to safety” for some Chinese investors, the inflows into Australian property may be even greater than Credit Suisse currently suggests.
With Australian property purchases by Chinese investors already growing exponentially, it appears that Australia’s foreign investment watchdog, the FIRB, may be kept busy in the months ahead.