Foreign demand grows for Australian homes
Australian approvals of home purchases by foreigners are on the rise, driven by increasing wealth globally and better integration with Asia, according to central bank assistant governor Christopher Kent.
"The data clearly shows an increase in the level of approvals for foreign residential purchases over time," Kent said yesterday. "But it is difficult to know how much this has boosted net demand for Australian housing."
He was testifying at an inquiry by lawmakers into foreign buying of real estate in response to concerns by locals that overseas demand, particularly from China, was driving up prices and reducing affordability.
Chinese overtook Americans to become the biggest buyers of Australian commercial and residential property in the past financial year as investment surged 42 per cent to A$5.9 billion (HK$43 billion), according to the Foreign Investment Review Board.
The Reserve Bank of Australia cut its overnight cash rate target by 2.25 percentage points between late 2011 and August last year to a record-low 2.5 per cent to aid domestic demand and boost industries including residential construction.
Home prices climbed 10.7 per cent across eight state and territory capitals in the 12 months to May to a median A$545,000.
"The rise in prices has primarily reflected increased housing demand from Australian residents and citizens, partly owing to low interest rates," Kent said. "[The RBA] wouldn't welcome further strong price growth of this level year after year."
A long, sharp increase in home prices, a surge in credit and a significant drop in lending standards were needed to put the housing market at risk, he said.
While the increase in prices so far had led to a small rise in credit, that growth remained relatively modest, he said.
There also had not been a "wholesale and significant drop in lending standards", he said.