INTEREST KILLER

BY GEORGE STYLLIS

On a recent overcast day in east Melbourne, Thomas Lindeman and his wife snapped up their new home.

At AUD1.6 million, theirs was the winning bid for a property in the suburb of Doncaster, and as they stripped apart the sold sticker and plastered it on the advertisement outside, their faces broke into broad smiles.

“It’s certainly a huge relief. And it’s nice to get the property within the range we were sort of looking at,” says the husband.

The Lindemans had looked at some 75 homes including townhouses, before buying the single-level, four-bedroom home, and might have ended up looking at dozens more had it not been for their ability to pay in cash.

A huge rise in mortgage rates has brought down house prices and put buyers like them—with cash—in a fortunate position. For the vast majority, however, the past year has been painful.

Between April and June, interest rates increased at a speed not seen in 30 years, saddling mortgage holders with crippling debts.

One of those, Andre Lattouf, was having to sell his home a year after buying it due to his mortgage repayments doubling.

“It’s choking us,” he told The Guardian. “It’s frustrating and sad. We spent so much time renovating this place and putting so much into it, but my mortgage repayments have almost doubled and it’s becoming a joke.”

In the second quarter of this year, residential sales declined 27% on the year as fewer houses came on the market.

In the rental market, Australia saw its lowest share of homes up for rent in 16 years at the end of the first quarter, at 1.4%.

In cities like Adelaide and Perth, vacancy rates were at their tightest, at 0.5% and 0.7%—far from a targeted level of 3%.

In Greater Brisbane and the Gold Coast, the rates were below 1%. Across regional Queensland, they were 1.2%.

“Australia’s interest rate is really killing the investment market,” says Benson Zhou, a director at Savills Australia.

Rich Pickings For The Wealthy

Australia’s most expensive real estate has shown remarkable resilience over the past year despite the hike in interest rates. Record sale prices have been reported in suburbs around the country, with many located on waterfronts, large estates, and on the upper levels of apartment towers.

One of the biggest deals was for a tiny two-bedroom home on the waterfront of Cabarita, which was bought for AUD17,000 in 1969 and sold this year for a record AUD8 million. Its allure was its location—Cabarita is one of the most sought-after spots in Sydney’s inner west.

One of the reasons for these mega sales is that wealthy buyers are less reliant on a mortgage. At the same time,

Australia, along with the US and UK, has emerged as a perceived haven for buyers amid turmoil and economic instability elsewhere in the world.

A downside of late, however, has been the introduction of higher fees for Australia’s non-resident buyers.

While some might be put off by this, such new regulations are becoming standard in major economies.

Canada has brought in a ban on non-residents looking to buy this year and next year; Los Angeles has a new mansion tax; there are tighter lending rules in Singapore; and Spain now has a wealth tax.

“The property yield is still around only 4% or 5%, so it doesn’t make any financial sense,” he adds.

Other experts have offered a similarly bleak picture of the market but believe there’s reason to be more optimistic in the months ahead.

At the start of August, Australia’s central bank held interest rates at 4.1% for a second straight month, saying previous rate hikes were helping to cool demand.

While it couldn’t rule out a further tightening to curb inflation, many see the rate hold as a good sign.

“Our view is that the rate hiking cycle has peaked. However, it’s not likely we will see interest rates coming down until next year, probably through the second half of next year,” says Tim Lawless, Research Director at CoreLogic, a consultancy.

So, what does this mean for the property market?

Despite interest rates staying stubbornly high, prices have since risen as an expected supply of housing stock were yet to materialise by September, making it harder for buyers to negotiate on new properties.

According to CoreLogic, property prices rose in August while major banks are predicting further gains of about 7% in the next 18 months. But much of that depends on whether more houses come on the market. The question is whether they are likely to.

Throughout July in Sydney and Melbourne, new listings were up around 9% in each city, which is a good sign. But there remain significant challenges to supply ahead.

The government approved 520,911 student visas in the last financial year, a new high.

“The first wave of [Chinese] buyers this year consisted of students who needed urgently to move to Australia to complete their studies in person,” says the co-founder of a high-profile Asian and Chinese international property portal.

“Students have also been joined by Chinese families who lived in China during the last three years, many of whom already had Australian permanent residency,” he adds.

According to the Institute of Public Affairs, international students took up 70% of the net new housing units supplied to the market, leaving just 30% for the rest of the country, including other new migrants.

The situation is only set to get tighter as the government is expected to bring in a further 187,000 net new international students, equivalent to 55% of the new housing supply.

Chinese Investors Return In Force

Chinese investors were absent from Australia for much of the pandemic, but now they’re back, cashed up and ready to buy. Pandemic restrictions saw the Chinese struggle to leave China and be admitted to Australia.

Australia has long been a favoured destination for property investment, and many investors have bulging bank accounts following the pandemic.

OH Property Group’s Henny Stier says the Chinese are rushing to buy everything from luxury homes to blocks of land, particularly in areas such as St Ives, a suburb on the Upper North Shore of Sydney.

“Just before the pandemic, Chinese investment was climbing by double digits,” says the co-founder of a high-profile Asian and Chinese international property portal.

“During the pandemic, it fell by at least half or 60%. Since China emerged in January from its Zero-Covid policies, investment has rapidly begun to recover. About one-third of Chinese buyers purchase in Victoria, about 30% in New South Wales, and about 20% in Queensland and Western Australia. “

The top destinations have a magnetism for buyers from China because of their educational opportunities, commercial and employment opportunities, and buyers’ ties to friends and family who already live there. A big factor that has drawn the Chinese back to Australia since it has become a sluggish local real estate market and tough economy.

“Australians are entitled to ask how they can find a home as inflation drives up mortgages and rent prices become unsustainable, yet the federal government has presided over an intake of international students who filled the equivalent of seven out of 10 new homes,” says IPA executive director Daniel Wild.

Wild added that the government has not “a single policy solution” to deal with the crisis and that it is “coming at an immense cost to Australians.”

Adding to supply fears are the woes of one of China’s biggest developers, Country Garden Holdings, which has a local subsidiary.

Country Garden has joined other major Chinese developers thought to be preparing a debt restructuring process—others include China Evergrande Group and Sunac China Holdings— after its shares hit a record low in August.

It comes after the developer warned it could report a loss of up to USD7.6 billion for the first half of the year and apologised to investors for misjudging market conditions.

Already other major Chinese developers such as Poly, Greenland, Yuhu, and Dalian Wanda have all either exited or downsized their Australian interests in the past few years.

Benson Zhou from Savills suspects some of this might be driven by Beijing to shore up China’s stalling economy, which has seen youth unemployment rise and its own housing market slump.

“I think overall the Chinese government is just trying to see money return to China, and reinvested back in China,” he says. “Obviously, they won’t tell you that, and I’m just guessing, but that’s what I think.”

CoreLogic’s Lawless says: “The medium-term outlook for housing supply remains an undersupply. Although the

National Cabinet announced an ambitious goal to build 1.2 million new well-located dwellings over the five years commencing July next year, the reality is new housing supply is going to take some time to deliver.”

How China and the US’s economies fare in the months ahead will also be critical to determining Australia’s direction.

The US has bucked predictions of a crash and appears to be prospering. Wages are strong and inflation is coming down.

Many investors are looking to see if the Chinese government will put prudence aside and start spending.

“If, in fact, China doesn’t do a lot of stimulation, that’s going to have a negative impact on what happens locally in Australia,” says Martin North, an analyst at consultancy Digital Finance Analytics.

“We’re caught in the middle now. Our major trade partner is China but our major power of influence is the US.”

Frosty Relations Show Signs Of Thawing

Relations between Beijing and Canberra have plumbed new depths in recent years, but a thaw in relations appears to be underway.

Under the Morrison government, there was the mutual detainment of each other’s journalists and the revoking of visas for academics. Before that, under Malcolm Turnbull, the Australian Security Intelligence Organisation warned of growing Chinese attempts to influence decision-making in Canberra.

Most recently Anthony Albanese got China’s back up by securing a deal with the UK and US to acquire, operate, and eventually build nuclear-powered submarines.

Albanese didn’t mention China by name in his announcement of the deal. But there was no doubt who he was referring to when he said the plan would ensure all countries could “act in their sovereign interests free from coercion”.

China responded angrily, saying the deal was a “path of error and danger.”

While Albanese is predicted to maintain a tough stance against China on Taiwan, Hong Kong, and the South China Sea, the fiery rhetoric of the previous governments has given way to more diplomatic language and better trade relations.

China has agreed to lift a punishing threeyear tariff on Australian barley. The same is expected for Australian wine. For the real estate market, this bodes well as foreign relations weigh heavy on Chinese investor sentiment, says Benson Zhou of Savills.

“If the relationship between China and Australia is further loosened up, I think we will see more investment from the Chinese into property there.”

The winners of the 8th Annual PropertyGuru Cambodia Property Awards, supported by sponsors CBRE Cambodia, Dewan Architects and Engineers, and SALTO Systems, were unveiled 18 August at the Sofitel Phnom Penh Phokeethra.

OCIC Group won Best Developer for the first time ever while its project Diamond Bay Garden won two accolades, including Best Condo Development (Cambodia). Siha Property Co., Ltd was named Best Boutique Developer while its project Siha Residence won four awards, including Best Housing Development (Cambodia).

Marum Estate, a project by Sir Stamford Raffles (Cambodia) Co., Ltd., also won four awards, including Best Township Development. Canopy Sands Development garnered three awards for its project Bay of Lights, including Best Township Masterplan Design.

Neak Oknha Chen Zhi, chairman of Prince Holding Group, accepted the Cambodia Real Estate Personality of the Year award.

For the full list of winners, visit asiapropertyawards.com/en/award/Cambodia

The Judges

Sorn Seap

Chairperson of the Awards in Cambodia and President, Cambodian Valuers and Estate Agents Association (CVEA)

David Granger

Siem Reap Branch Manager, IPS Real Estate Agency

Dilip Abye

Architectural Design Manager, Archetype Cambodia

Jenny Chea Sok You

Architect and Managing Director, CMED Construction

Jovany Antonio

Residential Director, DA&G Asset Management

Kinkesa Kim

Deputy Managing Director, CBRE Cambodia

Lim Veasna

Partner and Attorney-at-Law, Commercial

Arbitrator and Mark Agent, Vinaya Law Firm

Simon Griffiths

Managing Director, The Mall Company

Dr. Simon Vancliff

COO, Rose Marvel Co., Ltd

Thida Ann

Managing Director, PropNex Cambodia.

SPONSORS AND PARTNERS

Gold sponsor

CBRE Cambodia

Silver sponsor

Dewan Architects and Engineers

Silver sponsor

SALTO Systems

Official magazine

Property Report by PropertyGuru

Official publicity partner

TWPR

Media partners

Bridges, Cambodia Begins at 40, Construction & Property, Siemreap.net, and Southeast Asia Globe

Supporting associations

Cambodian Valuers and Estate Agents

Association (CVEA) and EuroCham Cambodia

Official supervisor

HLB