Fixed v variable: Which is better in a rising rate environment?
With the Reserve Bank of Australia (RBA) anticipated to continue its monetary policy tightening well into 2023 even afte...
A missed debt deadline last week confirmed the default of China’s second-largest property developer, Evergrande, giving renewed rise to fears of the potential impact on global economies.
It came at the same time as Fitch downgraded Kaisia, the country’s 27th largest developer, into default, adding to the worries of economic uncertainty ahead.
But Doron Peleg, CEO of BuyersBuyers, urged Australians not to fear a repeat of 2008’s global downturn, with much of the impact remaining to be seen.
“The dynamic is likely to be different from when Lehman collapsed, because Evergrande and Kaisa are property developers rather than an investment bank, and there is also likely to be a significant government intervention as authorities scramble to contain the fallout,” Mr Peleg explained.
“The bigger question is whether there will be a wider global impact and fallout from over-leveraged Chinese corporates, which is less clear at this juncture,” he said.
While much of the economic implications rely on whether Evergrande can carry out a successful restructuring, according to Mr Peleg, if the fallout escalates, it could potentially result in interest rates in Australia staying lower for longer, spurring continued interest in buying.
“It’s quite possible that Chinese debt defaults could damage confidence in financial markets globally, particularly if there is a growing fear of contagion,” Mr Peleg said.
“Interest rates at the zero lower bound were always going to be stimulatory for Australian property, especially for investors seeking returns,” he added.
But overall he advised Australian’s to stay focused on local trends. “Generally speaking, the experience in Australia is that domestic factors will have a far more material impact on housing market sentiment and trends, and sentiment is very positive in housing.”
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.