* Chinese enquiries drop to lowest since 2017 - Juwai IQI data
* Australian house prices were rising before pandemic
By Jonathan Barrett and Swati Pandey
SYDNEY, June 18 (Reuters) - Chinese buyer enquiries for Australian homes fell to their lowest in almost three years in May, according to independent data, suggesting multi-billion dollar housing demand could be another casualty of a diplomatic spat between the two countries.
Data published by international property portal Juwai IQI shows enquiries slumped by more than 65% in May compared with April, when enquiries surged as Australia emerged from the throes of the COVID-19 pandemic ahead of most rival markets.
May's slide coincided with a move by Canberra to push for an investigation into the origins of the novel coronavirus, first detected in China late last year, drawing a sharp rebuke from Beijing and threats of economic reprisals. prolonged slump in interest from China's real estate buyers could spell trouble for a sector that has been a pillar of Australia's economy in recent years. Mainland China has been a major source of foreign real estate investment, with investors pouring A$6.1 billion ($4.2 billion) into residential and commercial construction and home auctions in the last financial year alone.
"If the situation doesn't escalate further things will stabilise," Juwai IQI Executive Chairman Georg Chmiel told Reuters in a phone interview. "So long as it isn't prolonged, as long as it isn't systemic."
May's drop means mainland China now ranks below the United States and Canada as the largest source countries for investment in property in Australia, the Juwai IQI data shows.
Chinese investment typically flows into new apartments, fuelling construction activity and employment.
But a slowdown in Chinese demand will be a fresh blow to the already slowing housing market, though official figures still show dwelling approvals up 5.7% from a year ago.
Economists generally expect the diplomatic tensions to be resolved without too much of a hit to Australia's economy, though the spat is an added risk to an already uncertain outlook.
"In the current environment the rise in tensions potentially will have a negative impact so it is somewhat concerning," said Sarah Hunter, chief economist at BIS Oxford.
The Reserve Bank of Australia (RBA) expressed concern at its June 2 policy meeting about the outlook for dwelling investment, with the construction pipeline drying up, auction activity slowing and rents creeping lower. pullback could further frustrate Canberra's attempts to reignite the economy, made more difficult by China's decision in May to start suspending beef imports from Australia's major meat processors, and impose hefty tariffs on barley. = 1.4529 Australian dollars)