Foreign buyers are snapping up more than 1 in every 10 residences for sale in NSW and Victoria

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Weighed down by expectations for slower rental growth, the outlook for Australia’s residential property market dimmed slightly in the June quarter with the NAB’s Australian residential property index slipping four points to +17.

The survey, first launched in Q1 2011, focused on around 300 real estate agents/managers, property developers, asset/fund managers and owners/investors across all Australian states and territories.

Here’s the NAB on the findings of the June quarter report:

“The NAB Residential Property Index fell to +17 points in Q2 (+21 in Q1), dragged down by weak rents, but the index still sits above its long-term average (+14 points). Market sentiment improved in NSW (+50 points) & VIC (+49 points), but deteriorated in all other states. Sentiment fell very heavily in SA/NT (-42 points) & WA (-56 points), with both states printing their weakest index result since the survey began. NAB’s Residential Property Index is expected to rise to +35 points next year and +42 points in 2 years time. Property professionals in NSW are now the most optimistic in the country (replacing QLD), closely followed by VIC. In contrast, property professionals in WA are by far the most pessimistic in the country (and more so than in Q1)”.

“Reflective of the divergent residential property market performances across Australia, NAB chief economist Alan Oster notes that sentiment in Victoria and New South Wales remained strong, offsetting a substantial deterioration in other states and territories, particularly South and Western Australia.

Overall sentiment improved in Victoria and remained solid in NSW, but fell in all other states and quite heavily in SA and WA, with both states printing their weakest index result since the survey began.”

This is reflected in the chart below. Unsurprisingly, the outlook for eastern states is considerably stronger than elsewhere in the country.

Interestingly, particularly given certain restrictions on foreign investment in Australia’s existing residential property market, the NAB found that foreign investment in new properties slowed during the quarter while that for existing property increased, particularly in Victoria.

“Foreign buyers pulled back a little in new property markets in Q2, with their share of total demand falling to 12.8% (15.6% in Q1), with buyers less active in Victoria (18.1%) and NSW (13.1%). Property professionals estimated that foreign buyers accounted for 16.1% of all apartment sales and 11.5% of house sales in Q2.

According to Oster there were some big differences between the states, especially in the apartment market where foreigners purchased more than 28% of all new apartments in Victoria, compared to just 16.5% in NSW.

In existing housing markets, however, foreign buyers were more active with their share of national demand rising to 8.6% (7.5% in Q1), with foreign buyers accounting for more than 1 in 10 sales in both Victoria and NSW.

Foreign buyers accounted for 11.4% of all established apartment sales and 9.4% of house sales in Q2.

Outside of foreign activity in the residential property market Oster notes that ‘first home buyers were more prevalent in new property markets in the June quarter (accounting for more than 1 in 4 property sales) although this increase was mostly due to first home buyer investors’.”

In a sign that recent macroprudential measures to slow the growth in housing investment may be starting to have an impact, just over 20% of all sales were to property investors.

“Owner occupiers or up-graders were also more active in both new and established markets, while resident investors (net of FHBs) accounted for just over 1 in 5 sales in both new and established markets.”

Here’s the breakdown of sales in new properties recorded during the quarter:

And for existing property:

As for the implications of the survey, the NAB economics team is forecasting average national house price growth of 6.1% in 2015 before slowing to 3% in 2016.

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