Chinese demand for Sydney property ebbs

After running up 47 per cent in the three years to October, home prices in Sydney dropped 1.4 per cent in November, the biggest decline in at least five years.
After running up 47 per cent in the three years to October, home prices in Sydney dropped 1.4 per cent in November, the biggest decline in at least five years.PHOTO: AGENCE FRANCE-PRESSE

SYDNEY • The Chinese demand that helped propel a surge in Sydney home prices has dropped as much as 15 per cent from a year ago as China's stocks tumbled and its economy slowed, says real estate agent McGrath.

Buyers from mainland China are turning away from Sydney and Melbourne and looking at south- east Queensland, where dwelling values are "compelling", McGrath chief executive officer John McGrath said after the firm debuted on the Australian share market yesterday. Its shares opened at A$1.94 compared with the issue price of A$2.10 in an initial public offering that raised A$129.6 million (S$132.8 million).

Sydney and Melbourne prices are at the end of a growth cycle, Mr McGrath said. After running up 47 per cent in the three years to October, sending the value of an average Sydney house to about A$1 million, home prices in the city dropped 1.4 per cent in November, the biggest decline in at least five years.

Successful auctions also dropped to a three-year low in Australia's most populous city as record prices put off buyers.

Chinese buyers "are still there, but it is probably back 10 or 15 per cent from where they were a year ago", Mr McGrath said. "I think there is a whole combination of things there - the Chinese stock market and so forth."

The Shanghai Composite Index has dropped almost a third from its June high. Credit Suisse analysts Damien Boey and Hasan Tevfik said in a note on Nov 3 that waning confidence among Chinese buyers could dim their appetite for global property by 30 per cent.

McGrath shares, which fell as much as 8.6 per cent, were trading 6.9 per cent lower at A$1.95 as of 1.31pm in Sydney. The benchmark S&P/ASX 200 Index rose 0.1 per cent.

Existing investors, including Mr McGrath, the firm's millionaire founder, sold 31 million shares as part of the IPO.

"We are in a good position," Mr McGrath said after the listing. "Our growth prospects are outstanding."

The IPO values McGrath at A$272.1 million and will provide the funds to reduce debt and pay for the acquisition of a smaller competitor, the firm said in its prospectus.

The realtor has 3 per cent national market share and aims to take it past 20 per cent in the medium term, Mr McGrath said. The firm plans four to six acquisitions over the next four to five years, he said.

"Australia has many different markets," he said. "Sydney and Melbourne markets, there is no doubt, are at the end of the growth cycle.

"We don't depend on one or two markets. Our business is about volumes and, interestingly, when the markets calm, we see volumes go up."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 08, 2015, with the headline 'Chinese demand for Sydney property ebbs'. Print Edition | Subscribe