Foreigners with investments in Australia have been burnt by the steep fall in the dollar and will be discouraged from investing again, according to Meriton Group founder Harry Triguboff.
Mr Triguboff, whose apartment building and tourism-dependent serviced apartment business benefits from the lower dollar, argues that the steep fall in the currency has not saved the mining industry and will damage Australia’s reputation with existing offshore investors.
“We tried to save the iron ore industry and didn’t save it. If you were an investor who had already bought, you would not buy again,” the Sydney-based billionaire told The Australian.
The property magnate’s remarks are in contrast to Reserve Bank deputy governor Philip Lowe’s upbeat comments about the Australian and Chinese economies in Melbourne yesterday.
“The exchange rate has now adjusted considerably and this adjustment has continued over recent weeks,” Dr Lowe said.
“Just as the appreciation helped stabilise the economy in the upswing of the boom in commodity prices and mining investment, the depreciation is helping in the downswing.”
Australia’s currency has lost a third of its value against the US dollar since hitting a record $US1.10 in July 2011.
Concern about recession in Australia following a sharp fall in GDP growth was misplaced, Dr Lowe argued. “Looking through this volatility, the data for the June quarter suggest that the economy is continuing to grow at a similar rate to that of the past few years,” he said.
Dr Lowe also argued that China remained a source of “tremendous opportunity” for Australia, and the world’s second-largest economy would probably continue to grow at a rate of between 6 per cent and 7 per cent.
He said the dramatic bursting of the bubble in the Chinese stockmarket — which has lost about 40 per cent of its value since June — would have far less actual impact than recent commentary might suggest. “While this attracted much attention, these movements in the Chinese equity market are likely to have only limited implications for the overall Chinese economy,” he said.
“One area that has looked a little more positive of late is the (Chinese) residential property market. In some of the larger cities, property prices have been increasing again, although construction activity has yet to pick up noticeably.”
Mr Triguboff argued that an Australian dollar at US80c would strike the right economic balance.
However, offshore real estate investors would have made up ground on rising residential and commercial property prices with housing prices up 10 per cent nationally in the past year, spurred on by Sydney and Melbourne gains of 17.6 per cent and 10.6 per cent, respectively.
Meriton would build about 3000 apartments in the next year with substantial sales to Chinese and Asian buyers.
Mr Triguboff also owns 3200 serviced apartments in 13 buildings in Sydney, Brisbane and the Gold Coast, with another 1400 serviced apartments planned or under construction. He also told The Australian of plans to market entire apartment blocks of about 300 units each to global investors to accelerate his development pipeline.
When asked if a higher dollar would dampen offshore sales and stays at his serviced apartments, Mr Triguboff said it would have neglible impact on his business. Chinese investment in residential property would remain strong as safehaven destinations were sought, while inbound tourism at a currency rate of US80c would be unimpeded, he said. “The tourists will come anyway.”
The latest Foreign Investment Review Board annual report showed that the total value of investment proposals in 2013-14 reached $167.4 billion, a 23.4 per cent increase, with China vaulting past the US as Australia’s biggest source of foreign capital based on FIRB data. Foreign investment in commercial and residential real estate doubled from $37.5bn to $74.6bn.
Mr Triguboff said the falling dollar bred an air of instability. “Every time the dollar drops, on a trade-weighted index basis, I lose, everybody does,” he said.
A stable dollar would lead to a better outcome for the building sector, said Mr Triguboff, arguing that construction, tourism and the property sector provided more jobs than mining. However, he warned of potential overbuilding.
“Unless we are prepared to have more migrants, we will have an (apartment) oversupply in Sydney, Melbourne and Brisbane,” Mr Triguboff said.
Dr Lowe said the combination of highly accommodative monetary policy, sluggish wage growth and the weaker currency would in any case help insulate Australia from any weakening of China’s economy, but warned against relying on them in the longer term.
This article first appeared in The Australian Business Review.