China easing back on the throttle

While worldwide economic growth, especially in developed nations, has grown at a moderate pace, China has been a rising star for quite a while. This year has seen a downward trend in Chinese property market growth, as supply finally catches up with demand.

The Bureau of Resources and Energy Economic (BREE) in conjunction with Westpac, has recently released its China Resources Quarterly market update. In the update, BREE notes that although it is too early to tell, a recent nationwide support package announced on 30 September should go some way to stabilising the Chinese property market, now that it is reaching a more balanced trajectory.

The package announced by central authorities will address both supply- and demand-side issues. Among the remedies being rolled out are discounted mortgage rates, better loan-to-value ratios, reduced restrictions on investors, fewer restrictions on developer financing and funding for social housing and urban renewal.

BREE expects that these instruments will have a positive effect on the housing market in China.

Australia's property market

While the demand for housing and construction related resources is good news for Australia's industry and mining, the question is what are the flow-on effects for the Australian property market, and will the nation continue to enjoy positive interest from overseas investors?

Glenn Stevens, governor of the Reserve Bank of Australia (RBA) noted in his statement on the monetary policy decision that although China's property market has been trending lower throughout the year, it is in line with policy-makers' expectations.

Mr Stevens spoke to the fact that speculative activity in housing remains a pillar of economic growth, with further increases in lending to investors in housing assets.

The recent monetary policy decision keeps the market for lending competitive and accommodative. According to Mr Stevens, interest rates are very low and have continued to drop as competition to lend has increased among banks and finance providers.

The RBA foresees a continuing environment of low interest rates as being the best move to foster economic growth. This should be welcome news as investors all around the world clamour for projects that will provide higher yield, in a global environment of low interest.

According to deputy governor Philip Lowe, investors all over the world are interested in fixed assets that are returning more than the average bank account or term deposit could. In his 21 October speech he noted that asset prices have, of course, reflected to increase this growing interest in Australian real estate and similar assets.