This article first appeared in Forum, The Edge Malaysia Weekly on June 26, 2017 - July 2, 2017

In Malaysia, you know the share market is overbought when your koay teow seller offers you stock tips. What about in Australia? Does it qualify if a friend calls you for ideas on how to set up a property consultancy to introduce Malaysians and Malaysian developers to the Melbourne property market?

Kind of, right?

The Aussie real estate market was already red hot when Malaysian developers, tired of waiting for the local property market to gee up, chose to descend on Australia instead.

Newspapers like the Sydney Morning Herald and Australian Financial Review have produced reams of column inches devoted to the influx of Malaysian developers on their local scene.

Like Salcon’s A$37.88 million purchase last year of men’s fashion retailer Roger David’s former headquarters in Claremont street in South Yarra, Melbourne. Or former IJM Bhd CEO Datuk Teh Kean Ming’s (and his daughter Adelene) A$25.6 million capture, via their Beulah International vehicle, of Australia’s first Irish club, the Celtic Club, on the corner of Queen Street and La Trobe Street in central Melbourne.

And what about S P Setia’s very high-profile buy last year of a Melbourne site from Australian telco giant Telstra for a record A$101 million? The PNB-led developer plans to flip that real estate into two massive 69-storey twin towers estimated to cost A$640 million.

These are just three examples among dozens of developers that include UEM Sunrise, Matrix Concepts, Mulpha and OSK keen to make headway in Oz.

It’s a great market, admittedly. Not for nothing is Australia known as the Lucky Country, blessed with wealth, resources, good weather, more land than they know what to do with and a genial local population who are well-educated, skilled and outwardly focused.  Not to mention a cosmopolitan urban centre that is clean and well-developed — a magnet for wealthy Asians.

As Knight Frank’s head of commercial sales, Paul Henley, has been quoted as saying, “Australia is of much interest to Malaysian investors due to its strong underlying economic fundamentals [and] record-low interest rate[s]. With interest rates having dropped to their lowest ever, and a stable political scene with the federal election result, combined with an ever-growing population, Australia is well-positioned for offshore investors.”

But there is much more to Australia than bloody politicians and low interest rates. When I was in school there (last century), it was hard not to appreciate the endless sunshine, clear sea waters, excellent beer and fresh produce.

Precisely because of this appeal, and the wall of money (illegally procured as well as honestly) from Asia’s business people and civil service lackeys swollen with ill-gotten public monies, Australia has found itself a somewhat reluctant home for all this nouveau wealth.

There are many barometers of frothiness, but none more so than the “Crane Index”, which is an indicator of how much building there is in any given city. In a showdown between Oz and the US, Oz won, hands down.

Get this: with 305 cranes on the skyline, Sydney has more than TEN TIMES New York’s number. Melbourne, with 125, is still more than twice Seattle’s 58.

So, forget what they say about the US being well on the recovery trail. It is, but it’s more like a village path. Australia’s is a full-blown eight-lane highway. Until now.

Because Moody’s last week cut the long-term credit rating of Australia’s four biggest banks, hoping to rein in surging home prices and astronomical household debt in the face of sluggish wage growth.

Did you know? Over 60% of the Australian banking system’s loan book sits in residential property, nearly 20% more than Norway and over twice that of the US.  Contrast back-of-the-envelope calculations of around 25% to 30% for Malaysian banks at the height of the most recent house price rally, sometime in 2013.

Household debt Down Under is a mammoth 189% of annual household income — one of the highest levels in the world.

And in stark comparison to Malaysia, where we fret endlessly over a household 

debt-to –(nominal)  GDP ratio of around 88%, Australia sits at an eye-watering 123% of GDP.

No wonder our developers went there to flog their homes instead. As anyone who has ever bought stock in a developer (or is a developer him or herself), property is a simple but high-margin business.

To wit: buy (good) land cheap. Hire talented designers, architects, builders, sales and (social media) marketing people while tying up with a battery of lenders. And then watch your profits and loss balloon. But now, with Moody’s downgrade, lenders like ANZ, Commonwealth Bank, NAB and Westpac have to set aside more money as a buffer against potential default.

As Australian Prudential Regulation Authority chairman Wayne Byres said in April, “If we are going to put an increasing number of eggs into a single basket, we’d better make sure that basket is an unquestionably strong one.”

Is the rally over? Too early to tell, maybe.

One thing might militate against the Aussie bubble bursting though. Australia’s foreign builders aren’t necessarily selling to native Aussies, nooo. Their target market is instead the money launderers, wealthy entrepreneurs, old money families and fatcat professionals who have made their coins in their fast growing emerging home markets who are keen to squirrel away their wealth elsewhere.

Or as one businessman friend told me way back in 2009, the strategy is simple: “make your money in a third-world country but put your assets and families in a first-world country. That way you get the best of both worlds”.

Simple advice, no? But so prescient. Cue Australia.

Khoo Hsu Chuang is contributing editor at The Edge Malaysia

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