*A confluence of domestic and external factors – a tightening of banks’ lending standards due to stricter macroprudential measures, an increase in housing supply, particularly in the apartment market, and a significant drop-off in demand from both foreign and domestic investors – has exposed vulnerabilities in Australia’s housing market and the broader economy.

*Not only is the banking sector’s exposure to residential property substantial, at over 50 per cent of total assets, household debt ratios are among the highest in advanced economies, the International Monetary Fund warned  in February.

*One of the most conspicuous signs that Australia’s housing market is undergoing a correction is the sharp fall in the value of development sites purchased by Chinese investors. According to a report published in February by property adviser Knight Frank, mainland developers and investors acquired $1.3 billion  worth of sites last year, a 35 per cent fall on the previous year.

Even in Australia’s better-performing commercial property market, where transaction volumes in the office sector last year surpassed the $19 billion mark for the first time on record, mainland investors have retrenched significantly. According to a report published in January by CBRE, a real estate adviser, Chinese investment fell to just over A$1 billion last year, its lowest level since 2013, as mainland buyers, such as Dalian Wanda Group, were forced to dispose of assets.

Anglophone, (English speaking) politically stable, economically resilient (Australia has racked up a record 28 years without a recession) and highly transparent, Australia has long been one of the preferred markets for Chinese cross-border property investors.

*In its 2018 Global Real Estate Transparency Index, Jones Lang LaSalle ranked Australia second behind the UK and described it as “the standard-bearer for transparency” in the Asia-Pacific region. What is more, Australia is one of the most multicultural nations in the developed world, and a popular destination for Chinese students attending university.

**Knight Frank notes that mainland developers and investors accounted for more than 30 per cent of Australian residential development site sales last year – more or less the same share as in 2017 – and have bought more than a quarter of the sites that have transacted in each of the past five years.

*In Sydney, Melbourne and Brisbane, nearly 11 per cent of all new apartments were built by Chinese developers last year, with the share expected to rise to 22 per cent by 2021 for those currently under construction and with planning approval, according to Knight Frank.

*Mainland developers have also diversified their portfolios by increasing their exposure to Australian commercial property, particularly offices.

Australian regulators and policymakers are also acutely aware of the threat posed by the downturn in the housing market. The Australian Prudential Regulation Authority reversed some of its lending restrictions last year to reduce the risk of a credit crunch, while the central bank shifted its policy stance to neutral in February, acknowledging the threat posed by tumbling house prices.