'Safe haven' in Australian property
A near-25 per cent fall in the value of the Australian dollar in recent weeks has given a big boost to the buying power of offshore investors with an eye on Australian property - particularly at the luxury end of the market in Sydney.
But at home, demand from wealthy domestic buyers is likely to fall in line with declining company earnings and shrinking bonuses next year - and that will see deal volumes in the luxury market tumble further and put downward pressure on prices.
Timing an entry point into the market would therefore require careful consideration, said property analysts.
'We agree that in the short term there could be a bumpy road ahead,' said Sandie Dunne, sales director of W Estate Agents based in the upmarket Sydney suburb of Mosman. 'But in the meantime the question is where do you keep your money?'
Within 18 months to two years underlying factors of demand would return to drive demand and prices higher for Sydney waterfront properties, added Ms Dunne.
'So whilst everyone is scared around the world about the financial outlook, if you are looking for a safe haven for your money there's no place like Sydney.'
Factors supporting the longer-term growth of property values in the city included an undersupply at the luxury end of the market which was reflected in strong and rising rents, she added.
'And the buying power of offshore investors is now 25 per cent greater as a result of the fall in the exchange rate.'
Ms Dunne will be in Hong Kong this week to market luxury Sydney waterfront properties at presentations in the Australian Chamber of Commerce offices on Friday and Saturday.
ANZ bank will join the roadshow to offer finance to buyers.
Sales data collated by Brisbane-based property research group RP Data supported the view that prices of luxury waterfront properties in Sydney had remained resilient, said the group's research director, Tim Lawless.
'The top end of the market along the Sydney waterfront has typically been a safe haven protected from downturns,' he said.
But that history was now due to be put to the test.
'More recently with the absolute lack of confidence among buyers and pain in the equity and finance markets we have seen the top end of the market being more exposed to the downturn than has normally been the case.'
Deal volumes were down as buyers from the finance sector and company owners adjusted to sharp falls in their income and concerns over prospects for next year.
'The buyers are exposed to share market fluctuations and margin calls and some weak corporate reporting, which means bonuses are down and business profits are not as high.
'So we are now finding a lot more stock at the top end of the market and fewer buyers.'
While the Sydney luxury market had performed well in the first half of the year, a decline in deal volumes in recent months made it difficult to measure the impact of the present downturn in demand on prices, said Angie Zigomanis, senior project manager for Australian economic research house BIS Shrapnel.
'The market has been underpinned by buyers in the finance sector and company owners because until now company profits have been strong in Australia.
'But there is a question mark over what has happened in the last few months because we have not had many sales. I think, however, that we may well find the uncertainty in financial markets is affecting demand from likely buyers for property at the luxury end.'
Potential investors should also factor into their decisions the strong likelihood that the Australian dollar may continue falling in line with shrinking demand for commodities and falling local interest rates.
'Our house view is that it may ultimately settle in the low 70s [one Australian dollar to 70 US cents],' he said.
