China could be about to hurt Australian house prices even more with another increase of capital controls.
The Chinese were supposedly one of the biggest buyers of Australian property in the last few years. They wanted a safer place to keep all of their money. They didn't want to keep it in China where the Chinese Government could potentially get at it.
The Chinese much prefer property investments to equity investments, which still ended up benefiting Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) thanks to the growth of property prices.
China didn't want all that money leaving the country to buy foreign property, so it implemented capital controls were only US$50,000 could leave the country per person per year.
People then used methods like cryptocurrency and pooling quotas to get the money out of China. For example, 10 people could get US$500,000 out of the country. However, the AFR is reporting that China is now making examples of people who flout the laws.
Two Chinese economists that the AFR spoke to said that the tight controls on capital could remain in place for another one to five years. That's a long time to take a swathe of buyers out of the property market!
We have seen recently with Crown Resorts Ltd (ASX: CWN) and Bellamy's Australia Ltd (ASX: BAL) how action by the Chinese officials can quickly have a negative effect in Australia.
Foolish takeaway
I think this goes to show that tailwinds can soon become headwinds if they don't seem like assured tailwinds. This is yet another reason why I think investment property isn't a good idea right now. I'd much rather buy quality growth shares like Costa Group Holdings Ltd (ASX: CGC) for my portfolio.
