Chinese developers are increasingly downsizing or fleeing their Australian operations as China’s property crisis continues to intensify.
Chinese property giants such as Country Garden, Evergrande, Poly, Greenland, Yuhu and Wanda burst into Australia’s property market two decades ago, investing billions into buying and developing high-profile property across the country.
But as quickly as these developers arrived on our shores, they have also retreated.
China’s property sector, damaged by the nation’s recovery from the COVID-19 pandemic, has been contracting since the second half of 2021.
China’s property bubble burst, and with it came record losses a string of defaults and even major company bankruptcies.
The Exodus
Country Garden is the latest debt-laden Chinese developer to withdraw from the Australian property market after putting one of its last remaining local projects, a huge estate in Melbourne’s west, up for sale with an asking price of $250 million.
The developer is also selling a portion of its Sydney Wilton Greens project.
The move follows sales from other large Chinese developers who have downsized or exited their Australian operations over the past few years.
Greenland Australia sold a five-hectare Erskineville site in inner Sydney for $315 million in 2022.
The same year, Poly Australia pulled the plug on three projects in Sydney and Melbourne.
And in 2018, Chinese giant Wanda sold One Circular Quay to another Chinese developer, and now it's in the hands of Lendlease and Mitsubishi.
China’s property crisis
After almost 20 years of a housing boom in China, Beijing introduced a series of measures to crack down on the sector, limiting the amount developers can borrow and reducing bad debt levels.
But that caused China’s property bubble to spectacularly burst, causing the longest downward trend since the 1990s.
Country Garden recently posted a record first-half-year loss of $11 billion and is at serious risk of defaulting.
China's second largest real estate developer Evergrande recently crashed into filing for Chapter 15 insolvency in New York under the weight of the group's $468 billion of liabilities.
The developer has been under severe pressure, its delayed results having reported mind-boggling losses of more than $80 billion over two years.
As a result of plummeting financials, many Chinese developers are selling off assets here in Australia to help limit their debt liability
What does this mean for Australia?
There is speculation that China’s sharp property market spiral could lead to significant financial stress across other Chinese markets as the entire property development sector struggles to pay off debt.
The RBA warned that problems stemming from the "sharp deterioration" in China's property sector - which accounts for about 30% of the nation's economic growth - could lead to a global slowdown, weaker commodity prices and "reduced Chinese imports of Australian goods and services".
China is by far the largest trading partner of Australia and as construction activity fails commodity prices - such as iron ore - are likely to come under pressure, reducing our export earnings.
Of course, the Chinese government has a long history of pumping enormous stimulus into the local economy, and a repeat of this shouldn't be ruled out.
However, Country Garden may be the next domino to fall, with the risk of default on its bond highly elevated, the group having failed to raise the funds to meet repayments over the past week.
The collapse of such a vast group must surely have dramatic knock-on implications, even in the event of a government intervention.
We can also pretty much forget any Chinese developers being active in Australia over the coming years.
The retreat of Country Garden means that only one large Chinese developer remains active in Australia, at Barangaroo.
But remember, our economy is robust
The Australian economy also has inbuilt “automatic stabilisers”.
If there ever was a collapse in China and therefore in the Chinese demand for Australian iron ore, the Australian dollar would immediately depreciate, improving export competitiveness across the board.
There would still be some painful costs, of course, such as households having to pay more for imported goods, and government revenues taking a hit.
Finally, some perspective is in order.
It’s certainly true that China is, by far, Australia’s most important export market.
Still, the value of these exports amounts to around 7.5% of GDP.
Compare that with domestic sources of demand such as household consumption that stand at 50% of GDP.
The key takeaway?
If China sneezes, whatever the headlines might blare, don’t be surprised if Australia only gets a mild case of the sniffles.
