Horseman Global: AUSTRALIAN PROPERTY – THE CHINA SYNDROME
“Sydney property prices have been surging since the financial crisis. There are a number of reasons for this. Government policy was enacted to help boost property prices, while the RBA has cut interest rates to generational lows. Many commentators also cite interest from Asian buyers as a big driver of property prices.”
Odey's Brook Absolute Return Fund was up 10.25% for the third quarter, smashing the MSCI World's total return of 2.47% in sterling. In his third-quarter letter to investors, which was reviewed by ValueWalk, James Hanbury said the quarter's macro environment was not ideal for Brook Asset Management. Despite that, they saw positive contributions and alpha Read More
I would like to thank our summer intern, Angel Dimitrov Simbaev, for his help with this note.
Sydney property prices have been surging since the financial crisis. There are a number of reasons for this. Government policy was enacted to help boost property prices, while the Reserve Bank of Australia (RBA) has cut interest rates to generational lows. Many commentators also cite interest from Asian buyers as a big driver of property prices.
When thinking about Asian purchases of Australian property, I always wondered if the purchase was driven by the perceived “cheapness” of Australian property relative to their domestic market, or whether it was a defensive investment seeking to move hard cash out of their own economy to a “safe haven” such as Australia.
If Asian investors are buying on a “cheapness” argument, then investment should decline as domestic property prices decline.
Alternatively if Asian investors are seeking an economic safe haven, weakening domestic property prices could encourage even more safe haven flows. Australia requires foreigners to get approval before being allowed to make a purchase from the Foreign Investment Review Board (FIRB), who then collates the approvals in its annual report. This allows us to study other periods of Asian investor interest in Australia to get an idea of how investment flows from Asia to Australia reacted when domestic conditions in Asia weakened.
If we look at either the number of approvals or amounts invested into real estate, it is fairly clear that Asian property investment into Australia tends to rise and fall with domestic financial conditions. Japanese investment peaked in the late 80s and early 90s.