Worries over China's Property Market Overshadow Economic Prospects

Worries about a slowdown in China's property market are threatening to overshadow the country's economic prospects, according to the Organisation for Economic Cooperation and Development.

The report from the OECD stated that while the failure of small developers wouldn't pose a significant problem, this wouldn't be the case with larger developers who could put bank lending at risk. It identified a key risk as being an "overly quick liquidation of unsold property."

China is expected to see growth of 8.5% next year, even though exports will be affected by weakened demand and a decline in the nation's overall competitiveness.

According to the OECD the economy could be helped through government housing projects which would support the construction and moderate the effects of inflation, possibly allowing the government to cut interest rates from the middle of next year.

The vice premier of China, Li Keqiang has already announced the property market is entering a critical stage but feels restrictions on transactions should be maintained even though sales are declining. Latest figures show October sales fell by 25% compared to September and prices fell in 33 out of the 70 cities monitored.

The government has placed restrictions on mortgages and home purchases in around 40 cities and is also aiming to build 10 million affordable homes to boost supply. Some analysts are already predicting that falling property prices in cities such as Shanghai and Beijing could force the government to relinquish some of its hold on the property market. UBS is forecasting property prices will drop by between 10% and 15% in first tier cities in 2012 and by 5% to 10% in other cities.

Property Prices in Australia Fall Unexpectedly

Property prices in Australia are continuing to fall, as new figures for June show they have now declined for three straight months. One index showed that property prices in eight major cities dropped by 0.1% during the last quarter, and they are now at their lowest level since 2009. However the price falls in some cities were much larger, as property prices fell by 1% in Perth, and by 1.6% in Darwin. They are still continuing to rise in some cities as they increased by 0.4% in Sydney, and by 1.1% in Canberra.

Australia currently has the highest interest rates in the developed world, at 4.75%, although it has just been decided to keep rates the same for another month in spite of worries over high inflation figures. Rates have been increased seven times between October 2009 and November 2010.

The number of permits to build new homes, or to renovate existing houses and apartments fell by 3.5% from May, and building approvals have fallen by 15.5% year on year to June. This was unexpected as economists had been predicting a 3% increase in approvals during June, and a 10.3% fall for the year. Some analysts are taking the view that a fall in building approvals is good for house prices and should ensure that there aren't any real significant price drops in the future.

In spite of these gloomy figures, the medium to long-term outlook looks good, as economic growth is expected to boost the housing sector. There is a strong underlying demand for new homes, as around 135,000 units are built when there is a need for 200,000 new homes annually.

Australian Property Investment to Increase

According the Alan Oster, NAB chief economist, the number of people that plan to invest in Australia’s property market this year is surprisingly high. Figures show that numbers of interest have risen from 24% in December to 33% in March.

The increase is largely due to improvement in rental yields and changes that allow self-managed super funds to purchase residential property developments. This is good news for the property market, but the National Australia Bank survey shows that credit access continues to be a problem for developers.

Property price growth is expected to grow this year at about 0.6 percent and rental prices are anticipated to rise. Some in Australia are in favor of a “buyers strike” until the prices strengthen, but in exchange for the wait, they will have to pay higher rents.

Experts predict that rents will increase about 3.5 percent within the next year, and 5.2 percent by March 2013. WA is expected to see the biggest gain (4.6%) and SA/NT (2.9%) and Queensland (2.5%) are expected to experience the weakest gain.

Western Australia is expected to lead the way regarding house prices, with a 1.1 percent rise over the next year. New South Wales and the Australian Capital Territory are expected to see increases as well at 0.9 percent.

A recent survey has found that access to credit is now beginning to be more of a hindrance to purchasing properties over the interest rates. Regardless, Australia’s property experts agree that the property market will slowly see improvement this year.

Foreign investors drawn to Australian property market

Property in Australia used to be popular with British investors and also investors from New Zealand and the United States.

The economic downturn in these countries has led to a decreased number of investors, although recently the slack has been taken up by investors from the Far East, especially in certain areas of the country, which has proved very beneficial for the Australian property market as it has sheltered it from the worst of the economic downturn.

Australian property prices did decline during the worst of the downturn, but the news is getting a lot less gloomy and prices look set to rise as investment from overseas buyers returns.

The reason for this increase is because Australia is seen as a safe haven for investors who are looking for secure growth and who see huge capital gains to be made from buying into a depressed market.

The mortgage market for locals is difficult meaning that foreigners can easily outbid native buyers. Estate agents have been quick to exploit this trend with property exhibitions being arranged in major Asian cities.

There is little doubt that there are property hotspots around the country, especially in major cities where substantial investments into infrastructure are taking place.

The majority of the population live in the cities, and the capital of Perth is set to expand as massive construction projects are planned for this area, and also for Adelaide and other regional centres.

Foreign investment looks set to increase and the possibility of good returns looks set to continue especially while the more traditional markets of Europe and the United States remain in a state of flux.