As Australia battles the coronavirus, property investors should go west

Name: Australia and China cooperation too valuable for 'nonsensical' decoupling
Uploaded: 2020-10-12T08:30:06.000Z
Duration: 7 min 34 s
Description: Australia and China cooperation too valuable for 'nonsensical' decoupling

The combination of a China-fuelled recovery, relatively strong fundamentals and attractive pricing bodes well for Perth’s office sector

The city’s residential market has also been more resilient than Sydney’s and Melbourne’s

Reading Time:3 minutes

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Perth’s office market, while comparatively illiquid and not immune to the virus-driven slowdown in leasing activity, is better positioned to weather the Covid-19 downturn. Photo: Shutterstock

Nicholas Spiro

Published: 4:30pm, 12 Oct 2020Updated: 10:30pm, 12 Oct 2020

The late Herbert Stein, an economic adviser to former US presidents Richard Nixon and Gerald Ford, famously remarked that “if something cannot go on forever, it will stop”. For nearly three decades, Australia put Stein’s law to the test, enjoying the longest-running growth streak in the developed world.

Yet, on September 2, the “lucky country” finally ran out of luck as the Australian Bureau of Statistics announced that output shrank 7 per cent year on year in the second quarter, plunging the country into recession for the first time since 1991. The coronavirus-induced shock has been exacerbated by a resurgence of infections in Melbourne – which led to renewed lockdowns in the state of Victoria – and draconian internal border closures and international travel restrictions.

However, the recession is not as severe as in Europe and the United States. China’s brisk industrial demand-led recovery is helping shore up Australia’s economy, proving a boon for the resource-rich state of Western Australia, which accounts for 43 per cent of the nation’s exports. With a 33 per cent share of global iron ore output, the state is benefiting hugely from the surge in Chinese demand for the key steelmaking ingredient.

Despite the sharp deterioration in diplomatic relations between Canberra and Beijing, the price of iron ore has shot up by 50 per cent since early May, partly due to supply disruptions in Brazil and South Africa, which Australia’s producers have deftly exploited.

The Australian dollar, which historically has proved highly sensitive to commodity prices and economic developments in China, has risen 26 per cent against its US peer since late March, underpinned by Australia’s trade surplus.

07:34

Australia and China cooperation too valuable for 'nonsensical' decoupling

In the real estate sector, Perth, Western Australia’s capital, has long been a proxy for Chinese growth, in particular the performance of China’s manufacturing and infrastructure sectors. Although a much smaller and significantly less liquid market than Sydney and Melbourne – Australia’s two biggest cities account for around 80 per cent of the country’s investible stock of office assets – Perth is better placed to weather the virus-induced shock.

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