China is reportedly clamping down on underground banks through which its citizens are sending money to buy homes abroad in places like Australia, creating havoc in some overseas property markets.
Demand from China for apartments in Sydney has now reportedly fallen, according to The Australian:
The Chinese citizens sending money to Australia are scared that China’s banks and/or the currency will collapse so go to incredible lengths to get money out of China and into “safe havens” like Australian and Canadian real estate.
But the Chinese money exit clamps are becoming more successful and we have seen a big fall in Chinese demand for Sydney apartments…
Bloomberg reports that the “Chinese are limited by rules that allow them to convert only $50,000 per person a year”. So how do Chinese citizens side-step these exit controls?
The methods include China’s underground banks, transfers using Hong Kong money changers, carrying cash over borders and pooling the quotas of family and friends — a practice known as “smurfing.” The transfers exist in a gray area of cross-border legality: What’s perfectly legitimate in another country can contravene the law in China.
“It’s not legal for people to use secret channels to move money abroad, because this is smuggling,” says Xi Junyang, a finance professor at Shanghai University of Finance & Economics. “But the government has kept a laissez-faire attitude until recently.”
Now, policy makers are starting to take the outflow seriously. While it’s not about to run out of money, China has intensified a crackdown on underground banks that illegally channel cash abroad. It’s also trying to capture officials suspected of fleeing overseas with government funds.
Bloomberg outlines the techniques that are being used to get money out of the country. But what happens when the exit clamps grow tighter? How will that affect property prices abroad that were previously buoyed by interest from Chinese citizens?
There was a time when property development in Malaysia was for local buyers, seeking local homes. Restrictions on foreign ownership, Capital Gains Tax, and shorter bank loan repayment periods helped keep a lid on prices and speculation. As a result, property prices were more stable and homes more affordable for local buyers.
But obviously this is no longer the case, not helped by quantitative easing, speculation, longer loan repayment periods, and an almost free-for-all in the property sector.