THE number of foreign applications for investment in Australian housing is plunging as credit conditions tighten in China, according to Australia’s top financial bureaucrat.
Treasury secretary and Reserve Bank board member John Fraser says there has been a steep fall in applications since the Chinese government moved last year to slow capital outflows and reduce credit availability.
Foreign investment applications for residential housing in Australia totalled 40,000 last financial year, Mr Fraser said on Wednesday.
This financial year, that number was expected to fall more than 60 per cent to about 15,000, he said, “partly reflecting” the change in Chinese credit markets.
The revelation follows warnings from property buyers’ advocates in recent years that strong foreign demand for Australian property has contributed to a price surge in some cities.
Mr Fraser was speaking after Moody’s Investors Service downgraded its credit rating on China by one notch, citing the likelihood of a material rise in debt across the Chinese economy.
China was maintaining a strong rate of economic growth at about 6.5 per cent a year as it tried to balance expansion and economic stability, Mr Fraser said.
Its growth had been fuelled by credit, he said, but “Chinese authorities are clearly aware of the risks attached to this”.
“They are now implementing measures to maintain stability and this has included measures to reduce the outflow of capital from China,” he said.
“In turn, this has contributed to a softening of Chinese investment in Australian residential real estate since late 2016 — although interest in business investment remains strong but, even here, we are seeing the impact of tighter credit availability.”
Moody’s cut its long-term credit rating on China from Aa3 to A1 — still an upper-medium investment grade but four notches below Australia’s triple-A score.
Analysts at the ratings agency said they expected “China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows”.
The Australian dollar lost almost a third of a US cent to US74.55c in the wake of the announcement, and was buying US74.73c late on Wednesday.
Mr Fraser said that given its size, the Chinese economy could absorb shocks more easily than smaller economies.
“The good news is that other Asian economies including India and Indonesia continue to show strength and there has also been some pick-up in growth in Japan,” he said.
“The pick-up in Japanese growth has been led by stronger exports and investment related to the Olympics (at Tokyo in 2020), and Japan’s unemployment rate has fallen to multi-decade lows.”
Britain and the eurozone had also remained resilient and Treasury would continue to “watch closely as the negotiations over Brexit continue”, Mr Fraser said.
He also warned he was concerned about rising levels of household debt in Australia, saying “current low interest rates should not blind us to long term debt servicing obligations”.
Another ratings agency, Standard & Poor’s, earlier this week said private sector debt in Australia now stood at 136 per cent of gross domestic product, up from 117 per cent just four years ago.
By Jeff Whalley