Australian property prices are already running hot, but the return of foreign investment could pour fuel on the fire.
New analysis from Asian real estate platform Juwai IQI shows that while some capital cities have experienced double-digit price growth on the back of record stimulus, their experience has been ‘mild’ in comparison to overseas.
“In Australia, owners have benefitted from significant increases in value. The higher prices make it harder on buyers, but they need only look at Los Angeles and Montreal to see that things could have been worse. In those two cities, prices surged at about triple the rate as in Sydney,” Juwai IQI chair Georg Chmiel told Business Insider Australia.
Sydney prices rose by 12%, or $140,000, over the 12 months to March. It sees median prices in the Harbour City hit more than $1.3 million according to Domain.
The boom has been partly attributed to the combination of easy money, economic support and a largely contained COVID-19 outbreak, and has led to affordability concerns for buyers who simply can’t get a look in.
But looking globally, Sydney pales in comparison to the 30%-plus growth experienced in Montreal, Los Angeles, Auckland and Toronto over the same period.
In New Zealand, it has been enough for the nation’s central bank to unleash a world-leading response, introducing lending restrictions during the pandemic in an attempt to arrest runaway property prices.
Australia’s largest cities are comparatively closer to the ‘middle of the pack’, according to Chmiel, with Perth, Brisbane, and Melbourne all growing 9.7%, 8.2%, and 6.1% respectively.
“Australia has an appealing story of strong but relatively measured price growth. It’s doing much better than global competitors such as London or Tokyo, where prices fell by 6% and 7% respectively,” he said.
Yet, they have done so during a period where immigration has stalled and borders have remained largely closed.
At the same time that Melbourne, Sydney and Brisbane rank among the top 10 most popular cities with Chinese investors, it raises the potential of Australia’s boom to continue as the country eventually exits lockdown.
According to Juwai IQI analysts, pent-up demand, the strength of the market, and the return of students and regular transaction levels will all push Chinese investment to recover.
“The Australian market is already strong despite the lack of migration. Further upward price pressure will likely result as inbound migration resumes. That rapid price growth attracts buyers eager for a safe investment and afraid of missing out on an opportunity,” they wrote in a new global report.
“Many buyers have not purchased during the pandemic, and some will make those transactions in relatively short order when borders reopen.”
However, there are also reasons to believe the impact of foreign investors will be muted. Two years of lost migration, the exodus of tenants from inner city apartments and bumper construction levels are helping create slack in certain market segments.
Throw in concerns over the sustainability of double-digit price growth and a possible lending intervention speculated to come in the next few months, and there are some strong countervailing factors.
“Our Australian forecast for 2022 is for price growth to continue at more moderate rates,” Chmiel said.
“The same factors that have been supporting demand over the past year and a half are still prevalent, most notably cheap mortgages and a fear of missing out. On the other hand, an increase in supply and buyer fatigue will likely reduce the rate at which prices climb from the past year’s highs.”