Harry Triguboff expects deep rate cuts fast, as cooling Chinese demand weakens economy

Veteran apartment builder Harry Triguboff expects interest rates will fall sharply and quickly – as much as one percentage point in four months – as cooling demand from China apartment buyers and Europe's crisis weaken the Australian economy.

Triguboff, founder and chairman of Meriton Apartments, which builds about 1,500 units a year in Sydney and southeast Queensland, described his outlook as bearish for the short term but bullish in the medium to longer term.

"I do not believe that the Reserve Bank will keep the high rates at present levels," he told The Australian.

"Already Westpac is constantly saying that interest rates will drop. I say they must drop. If rates don't drop, building activity will drop even further."

Apartment prices had fallen about 10% in the past six months but would rebound because very little was being built, he advised.

Weaker economic conditions and the lack of new building would have a flow-on effect, putting pressure on the share prices of industrial and building materials companies, he added.

Including the Reserve Bank's 25-basis-point drop in November, Triguboff believes the cash rate will fall one percentage point in this round of cuts, with half of that fall in the next two months.

Having visited China earlier this year, Trigboff suggested China's domestic demand was far softer than a year ago and weaker conditions had stemmed the flow of Chinese investors to Australia.

The sales of Meriton apartments to Chinese buyers had fallen from about 25 to 12 a week, according to The Australian report.

Last month Triguboff told Business Spectator’s Robert Gottliebsen that while the Chinese were still buying strongly a “significant minority” of Chinese buyers were paying a $3,000 holding deposit, but then not proceeding and asking for their $3,000 to be returned.

The Gottliebsen column noted “Triguboff’s Meriton Group was selling about $500 million worth of apartments in inner Sydney to mainland Chinese – almost every inner Sydney apartment he erects”.

It noted where Triguboff builds apartments outside of the inner-Sydney areas the Chinese were not buyers, such as in his Brisbane apartment projects.

Triguboff estimated that he had about 25% of the Sydney market and believed that the total purchases in Sydney were therefore about $2 billion.

Triguboff does not build apartments in Melbourne, but he estimated Chinese buying in Melbourne would be about $1billion – a total of $3 billion in the two cities.

Meriton issued a press release after the last rate cut saying an increase in the demand for purchasing property as rates fall was imminent. 

“We are confident investors will turn their attention back into property where capital growth, secure income and increasing yields are a formality.

“Investors, some of which have had their money tied up in term bank deposits relying on rates to go up or those uncertain of a volatile share market will be first to react," it said.

“Another major factor that will put pressure on demand is strong population growth.“Many foreigners are lured by very low levels of unemployment compared to other developed countries as well as the large number of high quality educational institutions, which are operating at full capacity.

“As demand continues to outstrip supply, which cannot be rectified in the short term or by rate cuts, there can only be one outcome - higher prices,” the press release concluded.

Photo by Meriton