Chinese Demand for Aussie Homes Drops as Much 15%, McGrath Saysby
McGrath shares fell as low as A$1.92 vs. A$2.10 a piece in IPO
Sydney home values down the most in five years in November
Chinese demand, which helped propel a surge in Sydney homes, has dropped as much as 15 percent from a year earlier as China’s stocks tumbled and the economy slowed, according to real estate agent McGrath Ltd.
Buyers from mainland China are turning away from Sydney and Melbourne and looking at southeast Queensland where dwelling values are “compelling,” John McGrath, chief executive officer of McGrath, said after the firm debuted on the Australian share market in Sydney on Monday. The shares opened at A$1.94 compared with the issue price of A$2.10 in an initial public offering that raised A$129.6 million ($95 million).
Sydney and Melbourne prices are at the end of the “growth cycle,” McGrath said. After running up 47 percent in the three years to October, sending the value of an average Sydney house to about A$1 million, home prices in the city dropped 1.4 percent in November, the biggest decline in at least five years. Successful auctions also dropped to a three-year low in Australia’s most-populous city as record prices put off buyers.
Chinese buyers “are still there, but it is probably back 10 or 15 percent from where they were a year ago,” McGrath said. “I think there is a whole combination of things there. The Chinese stock market and so forth.”
The Shanghai Composite Index has dropped almost a third from its June high. Credit Suisse Group AG Sydney-based analysts Damien Boey and Hasan Tevfik said in a note Nov. 3 that waning confidence among Chinese buyers could dim their appetite for global property by 30 percent in 2015.
McGrath shares, which fell as much as 8.6 percent, were trading 6.9 percent lower at A$1.95 as of 1:31 p.m. in Sydney. The benchmark S&P/ASX 200 Index rose 0.1 percent. Existing investors, including McGrath, the firm’s millionaire founder, sold 31 million of their shares as part of the IPO, according to the prospectus.
"We are in a good position,” McGrath said after the listing. “Our growth prospects are outstanding.”
The IPO values McGrath at A$272.1 million and will provide the funds to reduce debt and pay for the acquisition of a smaller competitor, the firm said in its prospectus. The transaction comes as home values dropped for the first time since May in Sydney.
The realtor has 3 percent national market share and aims to take it past 20 percent in the medium term, McGrath said. The company plans four to six acquisitions over the next four to five years, he said.
"Australia has many different markets,” he said. “Sydney and Melbourne markets, there is no doubt, are at the end of the growth cycle. We don’t depend on one or two markets. Our business is about volumes and interestingly when the markets calm, we see volumes go up."
McGrath, which owns some branches and operates others under franchises, has a presence on the east coast, predominantly in New South Wales state and the Australian Capital Territory, and is expanding in Queensland state, according to the prospectus. It plans to establish an operation in Victoria state. McGrath has a 7.2 percent market share in NSW and 5.4 percent in the ACT.
Bell Potter Securities Ltd. and JPMorgan Chase & Co. managed the share sale.