Australia’s property market still a draw for foreign investors
High property prices in Australia are failing to deter overseas investors, including those from China and Hong Kong, despite the country’s central bank holding interest rates at record lows.
It comes as the country’s traditionally high commodity revenues continue to remain low, leaving consumer durable stocks in large homeware chains to drive the country’s stock market.
Last week the Reserve Bank of Australia kept interest rates stable at two per cent for the seventh month in a row, despite indications the Australian economy could be strengthening.
Australia’s central bank has cut rates 10 times since November 2011, with the last cut in May 2015.
Partly due to the low interest rates, property prices in major Australian cities Sydney and Melbourne have been rising steadily since 2011.
An unprecedented number of international investors, particulary from China, have also led the boom, with ANZ now estimating about one in five home buyers is from outside Australia.
Commonwealth Bank chief economist Craig James said Australia’s interest rates would stay low for the foreseeable future, either stable or slightly below two per cent.
“The Reserve Bank believes the Australian economy has picked up and they’ve got a positive outlook,” he said.
James said the numbers would keep the Australian dollar between 70 and 72 cents to the US dollar for the rest of the month, although it was expected to drop if the US Federal Reserve raises its interest rates in December. “If they do start lifting interest rates we’ll see the Aussie dollar easing against the greenback,” he said.
All these conditions haven’t done anything to stop foreign investor interest in the Australian real estate market. “One in five sales in the market were from foreigners [earlier this year] which is an extraordinarily high rate,” ANZ chief economist Warren Hogan said.
Hogan said while the property market was beginning to soften in Sydney and Melbourne, other major Australian cities and outlying areas were now seeing interest from foreign investors.
“Both domestic and international investors, they’re continuing looking for value in the next tier of cities, in Brisbane, Adelaide, Perth,” he said.
“I think you’ll even see activity in regional centres - a great example would be places like Cairns which has been very soft for the past 10 years.”
James said while mining and commodity stocks were down as international prices remained low, domestic consumer stocks were performing strongly.
“I think a continuation of low interest rates will be good for the consumer durable area, including realtors like Harvey Norman,” he said.
“Consumers will be more willing to spend rather than leave their money in the bank particulary if activity in the housing market continues strong.”