The second troublesome area is the increasing evidence that Chinese off-the-plan buyers are failing to settle properties. The biggest exposure seems to be the Melbourne apartment market where there is talk that as much as 40% of the new apartment sales to Chinese are likely to fall over. Your first reaction is that this might be a windfall gain for developers who get to keep the deposit and resell into a supposedly strong market. But more concerning is that the failure to complete contracts leads to pressure by funders to change gearing ratios to reduce risk by developers. It seems that the Chinese authorities are making headway into restricting capital flows from mainland China into Australia and this will have far reaching impacts into the Australian property market.
It is not a long stretch to see how these two combined effects lead to substantial discounts to newly completed properties. Banks then revise their Loan to value ratios and make calls to new home owners asking for capital contributions. Our valuation downward spiral would then begin and feed on its self. We are not there yet but investors need to keep a watchful eye on Sydney property prices.