China is likely to be the biggest risk to Aus property

[FelixL]

China is looking more and more like the biggest risk to oz property market. Australia is too reliant on China (resource, tourism, education, property etc), and right now China's economy is looking very much like Japan in the 1980s and America pre GFC.

I am of Chinese heritage and follows news over in China quite closely. The situation currently is really mind boggling. An average 2-br apartment in my home town is about 25 times the annual salary of a typical household income, so even if a family spent nothing, they will need 25 years to buy house!!! In reality only speculators and parent assistance can afford to buy, which can't go on forever

Chinese state govt is hell bent on increasing property price since their only KPI is GDP growth, and property revenue through selling land is the easiest route. They take on massive debt and provide lots of special green lights to top developers (so developers can keep buying land from govt at record price). Western media tend to only focus on the federal govt and its consistent GDP growth and supposedly massive foreign reserve, which overlooks the real danger lurking beneath.

Oh and the shadow banking system and rampant P2P lending is very much like the subprime junk....

The question is when China will implode (my sentimental side sure hopes it never happens!) and how it will affect Australia? China helped to smooth out the pain from GFC, who will be the saviour if China goes down?

The bottom line is how us property investor can do to mitigate the risk? My plan is to hold more cash/bond, sell down part of the portfolio that became low yield due to CG, buy new CF neutral/+ properties. Is there any other ways?


Here is a few of the articles on this

Aus dependency on China's fortune:

http://www.smh.com.au/comment/risky...-leaves-nation-vulnerable-20140310-34hkz.html

China's ridiculous property bubble

http://www.smh.com.au/business/are-...ing-towards-economic-ruin-20140321-358l2.html

 

[Trippy]

You are right in my opinion.

China's position does present a huge financial risk to Australia.
Anyone who does not spend some time educating themselves on the current hurdles facing China is negligent as an Investor in my opinion.

This information is freely available and with a little time can be easily found.
Look for the following- Current Iron ore prices and historical pricing; the state of the Chinese shadow banking system ; Steel mill defaults due to suspect lending practices; ghost cities and correlation to bubble pricing of real estate.

There are so many issues in China that the chances of them not suffering a major correction are almost nil in my opinion. It is a case of when... not if.

 

[willair]

I think China will just keep going the spread and ratio worldwide of liquid assets to debt makes it look not the real total picture from the majority of credit analysts data sellers..

 

[XMW]

We will be alright. Remember pink batt scheme which saved us from GFC? Roll out again.

 

[see_change]

And just in time the US Economy will ride to the rescue .

Hi ho silver ....

If I avoided investing whenever some one was peddling a doomsday senario , I wouldn't have bought any thing.

Buy well located properties in capital or major regional cities and have buffers .

If I go down , it's because the whole world is f.....d .

Cliff

 

[Aaron_C]

If I go down , it's because the whole world is f.....d .

Exactly, and the price of your real estate will be the least of your worries.

 

[see_change]

Exactly, and the price of your real estate will be the least of your worries.

I have a relative on acreage , a couple of hours out of sydney in a nice remote valley .......

Cliff

 

[equitymate]

I have a relative on acreage , a couple of hours out of sydney in a nice remote valley .......

Cliff

Have they got a good supply of baked beans, guns and ammo?

 

[FelixL]

And just in time the US Economy will ride to the rescue .

Hi ho silver ....

If I avoided investing whenever some one was peddling a doomsday senario , I wouldn't have bought any thing.

Buy well located properties in capital or major regional cities and have buffers .

If I go down , it's because the whole world is f.....d .

Cliff

not so sure if US itself is immune to another downturn...

http://www.smh.com.au/business/mark...ther-says-jeremy-grantham-20140325-35f34.html

I do think it will present an opportunity to invest should China goes bust, provided that I have still have a job and have enough spare cash.

I don't worry about major dooms day since as you said, the world goes down then nothing matters. But most likely it will be a painful but ultimately survivable one that I want to mitigate

 

[see_change]

Have they got a good supply of baked beans, guns and ammo?

Nope . If it comes to that I don't think my skill set will have me particularly high up the ladder in terms of the survival expectancy . Just hope I can hitch on to a group who need a medico and physio ....

Maybe I should invest in a portable surgery , then I'd need to do a crash course in trauma work , but at least I wouldn't need to worry about the medical board if I stuffed up , just irate relatives .

Cliff

 

[mrdobalina]

I do think it will present an opportunity to invest should China goes bust, provided that I have still have a job and have enough spare cash.

Stay cashed up, then go on a buying spree when asset values overshoot on the decline.

 

[Spades]

I have a relative on acreage , a couple of hours out of sydney in a nice remote valley .......

Cliff

Same and that will be my last exit when the **** hit's the fan

The future looks bleak imo employment wise,outsourcing,more popualtion than jobs,stupid gubberment etc etc.

More jobs contract,casual than F/time employment.

Disallusioned day in day out with my job,i want to exit as i feel i have a gun at my rear and employers expect more from you but let's forget H&S,ffs wish i had a union.

I'm looking at all options atm as my current employer does not give a rats about your wellbeing as long as the jobs are done and they don't get fined.

I'm totally over the rat race.

Cheers Spades

 

[truong]

There have been predictions of a Chinese credit crunch for some time now but nothing has transpired. However this time it's looking more serious.

I'm getting bad vibes from the people I know in China anxious about the wave of bankruptcies that has hit mid size developers. Unlike the well-publicised case of Zhejiang Xingrun, most of the bankrupt have borrowed money on the informal market making them opaque to the system and the media.

One relative told me he knows of a man in Wenzhou who, stung by falling house prices, has fled abroad, which appears to be the norm whenever a P2P loan collapses. Because P2P is akin to a Ponzi scheme where lent funds are used to repay preceding lenders, one collapse may be the trigger for many more.

So for now just anecdotal evidence of a lot of stress on the property market and the grey credit scene that wasn't there several years ago. Whether this will develop into a US style crash is utterly unclear. If it happens the 2 major economies that skirted the GFC (China and Oz) would be hit by its aftermath thus making the GFC truly global.

 

[impala67]

There will be no Minsky moment for China

http://www.businessspectator.com.au/article/2014/3/25/china/there-will-be-no-minsky-moment-china
- Peter Cai / businessspectator.com.au

"It has become fashionable lately to borrow American financial crisis lexicons such as 'Lehman Moment' or 'Minsky moment' to describe the dark cloud hanging over China's economy. Analysts are spotting similarities between the US just before the Wall Street meltdown and present day China...."

...While shadow bank credit defaults are expected to rise, the lack of leverage in the sector, ample liquidity in the financial system and the government's control mean that systematic risks can be contained and a sharp deleveraging will be unlikely...

...Yiping Huang, a former chief Asia economist for both Citigroup and Barclays, said: Some economists in China have been forecasting the bursting of a property bubble for 10 years now. While economists benefited from their insights, investors who followed their advice lost 10 years of investment opportunities...

...Yes, China faces huge challenges this year in dealing with mounting debt problems and a slowing economy. But we cannot ignore the fundamentals, such as strong balance sheets and reform momentum. If history tells us anything, it's that Beijing has a strong record of proving pessimists wrong and shorting China has never been an easy proposition."

 

[FelixL]

...Yes, China faces huge challenges this year in dealing with mounting debt problems and a slowing economy. But we cannot ignore the fundamentals, such as strong balance sheets and reform momentum. If history tells us anything, it's that Beijing has a strong record of proving pessimists wrong and shorting China has never been an easy proposition."

Beijing had strong record??? tiananmen square isn't that far away in history and the recent years of economic prosperity had huge social and environmental impact...

 

[Deltaberry]

Australia's not immune to a Chinese recession/downturn, which may very well happen based on what I can see.

Real question would be, would China go down the path of Japan and be a lost country forever, or will it just be a temporary, 4-5 year blip like most countries experience? And will Indonesia/Vietnam/India rise soon enough to propel the Asian boom to new heights?

 

[Ausprop]

just to be pedantic, risk is a likelihood

 

[impala67]

Don't see it as recession for China. More of a downturn and temporary. Their government won't allow it, as it didn't allow a downturn several years back.

We'll see what stimulus package they pull out in 2014.

Those growth figures are a national obsession.

Totally agree Oz is not immune. I think the downturn for China is still a few years away.

 

[dex]

Li Ka-shing offloaded US$7 billion worth of property in China recently. He is a high school dropout who built an empire which includes banking, construction, real estate, plastics, mobile phones, satellite television, cement production, retail outlets (pharmacies and supermarkets), hotels, domestic transportation, airports, electric power, steel production, ports, and shipping. He's Hong Kong's richest person worth US$31 billion so probably has his pulse on things.

http://en.wikipedia.org/wiki/Li_Ka-shing

 

[The Fence]

Kashing in....his chips.