Coronavirus is infecting the property market in China with developers halting their projects, but will it do the same in Australia? Lefta Group Property Expert, Steve Chandler takes a look at how Coronavirus my affect the Australian property market.
The Coronavirus will hit the Chinese developers who are leveraged via Chinese funding as most mainland Chinese developers are highly leveraged. When you consider the size of the debts that these companies are carrying and the virtually dead property market over there, I can see the Chinese masters calling back capital from Australia to pay down their domestic debt levels.
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This will stall a number of major property development projects in Australia including large scale land subdivisions and large apartment estates. Some might say that this isn’t relevant to us in Australia however it will constrain the supply of property and will result in increased prices as more people are looking for less properties. It also means less jobs will be available in the building sector, driving unemployment upward.
It’s starting to sound a lot like the Japanese exit from the Australian market in the 1980’s. Massive amounts of capital were poured into Australia only to be taken back to Japan a few years later, often for less than what was brought into Australia.
Regardless of capital being called back to China, there are many non-Chinese led building projects still progressing in Australia. But Australian builders who have relied on the supply of inexpensive Chinese building products are starting to feel the heat of the Chinese closedown. Many builders, particularly the larger scale ones, import building materials from China as it is substantially cheaper than locally sourced materials.
With industry in China closed down due to Chinese officials trying to contain the spread of the Coronavirus, no products are being made or being shipped to Australia. Australian builders are now exposed to higher costs to source products locally or they are being hit with liquidated damages for delaying completion of their projects, or both.
This has the potential to send builders broke if they are heavily reliant upon cheap Chinese imports. It may also negatively affect the property developer or property owner who may also have other commitments that they are delayed in meeting. More job losses and higher unemployment can result.
And then there’s property investment. With uncertainty surrounding when Chinese international university students may be permitted to come to Australia and when many Australian Chinese will be able to see family again, or be certain of their welfare, there is limited focus upon investing in property. Higher unemployment is likely as demand for property drops resulting in property developers delaying decisions to commence projects.
With Australia’s property industry being heavily reliant upon the Chinese economy there are troubled waters ahead if the Coronavirus isn’t contained promptly by Chinese authorities.