Wise Up, Sydney…Property Prices in Chinese Yuan Terms Have Gone Down!

First Home Buyers Priced out of Sydney Market’, ‘RBA Considers Lending Constraints on Property’, ‘Rundown Shack Sells for $1m Over Reserve’

These are the headlines of nearly every Australian daily newspaper commenting on the residential property boom currently taking place in Australia, and in Sydney in particular. Many reasons are cited for the price appreciation in AUD terms, but very few commentators have bothered to look at the exchange rate. The AUD has declined by over 47% against the Chinese Yuan since June 2011, making Australian property much cheaper from a Chinese investor’s standpoint

The picture below, in fact, shows that Sydney residential property prices are still well below their peak from a Chinese Yuan perspective versus the peak in the AUD/CNY exchange rate in June 2011. The blue line is the performance of the Sydney Residential Property index in AUD (courtesy of the ABS), while the red line is the same index expressed in Chinese Yuan. The red dot bases both series at 100 corresponding to the peak in the AUD. The diagram shows that while Sydney property has risen in value in AUD terms by 38% since June 2011, this has not been sufficient to offset the 47% decline in the AUD against the Yuan

Chinese investors who bought Sydney property in 2011 have lost money in CNY terms, as have those who bought property as recently as December 2014! The flipside is that Sydney property is actually cheaper than it was in June 2011 for Chinese investors looking to park some of their stockmarket profits in Australian property. On this basis, Sydney property is going up so long as the AUD remains weak

The Reserve Bank of Australia should take careful note of this for two reasons. First and foremost, THERE IS NO BUBBLE IN AUSTRALIAN PROPERTY. Foreign investors view Australia as a cheaper and cheapening investment venue. Second, the RBA is partially to blame for promoting a weak AUD which, in turn, has created strong offshore demand for property, driving up domestic prices. If it truly wants to arrest the climb in Australian property prices domestically, it should take steps to strengthen the AUD