In a trend that now mirrors global developments, the property prices in Australia’s major cities have been skyrocketing over the past few years. The boom is attributable to local buyers as well as foreign buyers who buy the properties as investments.
Foreign investment is a speculated to be a driving factor to the increasing prices in the Australian property market. There are various other factors that are also driving the home prices such as overpopulation, the high cost of real estate transactions, low supply of premium value properties and lower interest rates.
Still, a large number of Australians are placing the blame for the skyrocketing prices of homes and apartments on foreign buyers. According to a survey done recently, up to 49% of Gen-Yers blame foreign buyers for runaway property prices compared to 72% of those that are over the age of 65.
There is also a perception issue and paranoia around the debate on whether foreign buyers are driving up the prices of properties. A more realistic picture is that a combination of these factors has created a “perfect storm” that is steadily driving up the cost of property in the major cities.
In Singapore, foreign investment and speculation has driven the real estate market bubble to the point where the local buyers have simply been priced out, forcing the government to make certain interventions and restrictions. These interventions has also been forthcoming in the Australian real estate market. The current budget targets foreign real estate investment and restricts the number of homes that can be sold to foreign buyers in new developments.
Who are the Foreign Buyers?
The biggest group of buyers who are perceived to be driving up the property prices are the Chinese. But this perception may not be true as Chinese buyers currently account for only 2% of total property purchases in Australia. Their contribution to the quarterly price increase was only 1% or $122 out of an average increase of $12,800 according to the business consultancy firm Cross Border Management.
Low Interest Rates
What seems to be having a more serious impact on the sharp rise in real estate prices is the current low interest rates. The low rates makes property investment a very attractive prospect so many Australians are jumping onto the bandwagon and buying up lots of property which puts pressure on the market leading to a sharp price increase.
For several decades, property prices in Australia have been ahead of the inflation and this has pushed a large number of players into the real estate market. Population growth has been the other key factor driving up the prices. City population has risen steadily over the past few decades applying further pressure on the real estate market.
One area where the foreign investors may be impacting the property prices is in the apartment market. Foreign investment has been focused in this area so the concentration of money in this area has likely had a more noticeable effect on the market.