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March 18, 2019

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Sydney feeling the pain as Chinese interest slows

As property prices rocketed toward the heady peak of Sydney’s real-estate boom in 2017, the bulldozers came to Epping.

Eucalyptus-lined streets of red-brick bungalows in the middle-class suburb were snapped up at hefty premiums by developers, razed, and quickly remade as apartment blocks.

Many units were sold off-plan to Chinese investors drawn by the location’s reputation as a Chinese community hub and its highly -regarded schools.

But prices are now in freefall, and the suburb is being refashioned once more, this time into the epicenter of a bust.

As buyers disappear, some projects are sinking under debt.

“Once the sales rates and pricing dropped, it just couldn’t service all of its commitments,” said Philip Campbell-Wilson, who is liquidating one such new development, Gondon’s Elysee Epping.

Now 61 of Gondon’s 130 apartments are for sale all bundled together to recoup creditors’ funds, pushing prices in the area lower still. Prices in the Epping area have already fallen more than a fifth from their peak, according to data from property consultant Corelogic, the steepest falls in Sydney.

“Up until December there’s actually been an acceleration of the decrease in pricing,” said Jay Carter, sales director at the Australian arm of Chinese developer Poly Real Estate Group Co, which recently built a 516-unit complex in Epping.

Poly plans to hang on to most of around 30 unsold apartments in its development in the hope the rate of Sydney price falls slowing slightly in January signals the bottom of the market approaching, he added.

As monthly insolvencies in the construction industry hit their highest in almost three years in November, consequences have begun to ripple outwards through Australia’s economy.

A slew of profit downgrades and weak results at businesses from banks to advertisers and retailers has followed and the central bank has now opened the door to a cut in interest rates.

Curbs on lending to foreigners hurt demand from Chinese investors, Australia’s largest source of international property investment.

In the last financial year, foreign investment in residential property dropped 58 percent to A$12.5 billion (US$8.86 billion), government figures show.

Local investors are also finding it tougher to borrow as banks tighten loan conditions under pressure from regulators.

The impact has been underestimated according to Peter Summers, chief executive of AVJennings, a developer now looking to slow supply as the market turns sour.

The company announced a 91 percent drop in half-year profits as a combination of delays and buyers’ reticence sapped sales.

But while the heaviest wipeouts have been reserved for the frothiest sections of the market, like apartments built for foreign buyers, developers such as Mirvac Group say they are so far unscathed and even on the lookout for sites.­

Price falls are also giving first-time buyers a chance to get into a market previously ranked as among the least affordable.

But the sentiment has still brought forward-looking construction indicators to a screeching halt. Monthly building approvals are down by 40 percent from their peak and construction loans hit a three-year low in December.

Profits are falling, or forecast to drop at building suppliers CSR Ltd and Boral Ltd, and ancillary companies are also suffering.

“It flows through everything,” said Jason Teh, chief investment officer at Vertium Asset Management.

Housing price falls tend to discourage spending because home owners feel less wealthy, save more, and cut back on purchases.

Property classifieds sites Domain Australia Holdings Ltd and News Corp-owned rival REA Group as well as furniture seller Nick Scali are also feeling negative effects.

Grocers Coles Group Ltd and Woolworths Group Ltd have also reported slowdowns.


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