Chinese debt default
Evergrande is China's second-largest property developer, and the latest reports of a debt default have again spooked financial markets, raising renewed financial stability concerns.
Doron Peleg, CEO of Australia's first national network of property buyer's agents, BuyersBuyers, said that the full implications of the default cannot yet be known.
Mr Peleg said, "Evergrande has been prominent in the news for some time, and the reports of official default will renew concerns about whether a successful restructure can be carried out."
"The dynamic is likely to be different from when Lehman collapsed, because Evergrande and Kaisa are property developers rather than an investment bank, and there is also likely to be a significant government intervention as authorities scramble to contain the fallout."
"The bigger question is whether there will be a wider global impact and fallout from over-leveraged Chinese corporates, which is less clear at this juncture" Mr Peleg said.
Local sentiment solid
Pete Wargent, the co-founder of BuyersBuyers, said local sentiment tends to be the key driver for the Australian property economy and housing market.
Mr Wargent said, "what we've been seeing in 2021 in Australian property is a fear of missing the boat, as prices have risen across every capital city, by about 20 per cent on average".
"There are now record numbers of scheduled auctions, and new market listings have surged in Sydney and Melbourne - so there is much more choice for buyers coming online, and there's an attractive window of opportunity to buy property before immigration ramps up again."
"Homebuyer sentiment is much more balanced now, but investors are still champing at the bit. It's clear that fixed-rate mortgages are now rising, though we haven't seen any increase in variable rates just yet" Mr Wargent said.
Figure 1 – Fixed mortgage rates rising
Source: Reserve Bank of Australia
Mr Wargent added, "it's worth remembering, though, that with all the refinancing that's been going on this year, the average mortgage rate being paid across all outstanding loans is the lowest in history."
Figure 2 – Declining borrowing costs
Source: Reserve Bank of Australia
"I'd expect to see a more balanced market in 2022, but rental vacancies are so tight that rents will probably rise at a double-digit pace next year as the borders reopen, and investors will be very active, in turn pushing prices higher" Mr Wargent said.
Rates lower for longer
BuyersBuyers CEO Doron Peleg said if the Evergrande and Kaisa fallout escalates, this could even result in interest rates staying lower for longer.
Mr Peleg said, "interest rates at the zero lower bound were always going to be stimulatory for Australian property, especially for investors seeking returns."
"It's quite possible that Chinese debt defaults could damage confidence in financial markets globally, particularly if there is a growing fear of contagion."
"However, generally speaking, the experience in Australia is that domestic factors will have a far more material impact on housing market sentiment and trends, and sentiment is very positive in housing" Mr Peleg said.
