I’ve just returned from Shenzhen, China’s powerhouse tech hub and one of the most dynamic real estate markets in the world. While there, I met an Australian developer who has built more than 10,000 apartments across China over the past two decades.
His message was blunt: the market has cracked. Prices are down, buyer confidence is fragile, and many local developers—carrying heavy debt—are under severe financial pressure.
He’s in a stronger position than most, with his remaining stock fully paid and debt-free. But walking through those projects, it was clear how fast a debt-fuelled boom can unwind—and how dependent the Chinese system is on developer leverage.
It was a powerful reminder that Australia’s stability isn’t luck—it’s structure. Our market is defined by perpetual freehold ownership, tight lending regulation, and restricted land supply, all of which create natural price floors for quality assets.
Big Picture: Two Systems, Two Risks
China: The Developer Economy
China built a property engine to power GDP growth and urbanisation. Developers borrowed heavily, pre-sold apartments, and purchased land from local governments reliant on those sales for revenue.
When Beijing introduced “three red lines” deleveraging rules, liquidity dried up. The result:
Developer stress and collateral deflation
Falling values and stalled projects
A feedback loop that hit both confidence and construction
In 2024, China’s residential new-home transaction area fell about 14% year-on-year, while transaction value dropped roughly 18%, reaching its lowest level since 2009.
Among the top 100 developers, total sales were down over 23% year-on-year, according to industry data.
Despite this downturn, China’s home ownership rate exceeds 90%—one of the highest in the world.
The problem isn’t ownership; it’s oversupply and delivery. Analysts estimate there’s more than two years of housing inventory still to clear.
Australia: The Household Economy
Australia runs a demand-driven housing market built on freehold title, tax incentives (negative gearing, CGT discount), and planning restrictions that limit new supply in prime areas.
Our main vulnerability isn’t developers—it’s household serviceability when interest rates rise. Yet the system remains robust: APRA’s lending buffers, now set at around 3% above actual rates, act as a safeguard that keeps distress contained.
Around 66% of Australian households own their home—31% outright and 35% with a mortgage. The remainder rent. This means our risk is concentrated not in empty stock, but in debt-loaded households sensitive to rate pressure.
Ownership & Land: Why the Foundations Matter
Australia:
Perpetual freehold is the cornerstone of our housing system. It gives families tangible, sovereign-backed ownership, enabling intergenerational wealth transfer and long-term value stability.
China:
Buyers purchase 70-year land-use rights.
Renewal exists in principle, but the mechanism sits with the state—creating uncertainty over long-term ownership and valuation.
These differences shape behaviour. In China, home ownership is culturally tied to status and marriage prospects, with families pooling savings to buy.
In Australia, ownership remains aspirational but heavily mortgage-driven, increasing rate sensitivity when conditions tighten.
Affordability and Supply: Two Sides of the Same Coin
Both countries face affordability pressures—but for opposite reasons.
China’s Tier-1 cities (Shenzhen, Beijing, Shanghai, Guangzhou) reached extreme price-to-income ratios during the boom, while Australia’s capitals (Sydney, Melbourne) are among the most unaffordable in the world, despite modest population growth and sluggish construction.
Supply & Policy: How We Got Here
China:
After three decades of building, new starts have collapsed. Authorities are focused on completing stalled projects and absorbing inventory, including converting unsold apartments into social housing. But because local governments depend on land sales for funding, the policy reset remains messy and slow.
Australia:
Developers face a different bottleneck—planning and zoning. Supply growth hasn’t kept up with demand, especially near transport and jobs. Tax policy continues to pull investor capital into existing homes rather than new builds, keeping prices elevated and vacancy rates low.
The takeaway: Volume alone doesn’t fix affordability. Without planning reform, rational incentives, and balanced lending, markets either overbuild (China) or under-deliver (Australia).
What I Saw in Shenzhen—and Why It Matters Here
In Shenzhen, I walked through rows of well-built towers now trading below their previous peaks. Not because they were poor quality, but because distressed neighbouring sales dragged the entire precinct down.
That sort of systemic repricing can’t happen in Australia. Our lending is standardised, banks are tightly regulated, and the supply pipeline can’t flood the market.
But we’re not immune. If rates remain high and unemployment rises, distress will appear quietly at first—discounting, longer days on market—then visibly, through mortgagee listings in certain pockets.
Right now, Melbourne remains the softest major capital. What we’re seeing isn’t contagion—it’s selective adjustment.
For disciplined buyers, these conditions create strategic opportunities to acquire quality assets at a discount.
