The findings of a survey on the Australian public’s views about the country’s relationship with China, conducted by the University of Technology Sydney in March-April, showed that 82 per cent of respondents believed Chinese investors were driving up house prices. Nearly 70 per cent believed they were still making it difficult for first-time buyers to enter the market.

The results of the poll – a hangover from the scapegoating of wealthy Chinese investors by some Australian politicians and journalists, who fanned fears that first-time buyers were being priced out of home ownership in their own cities – reflect the persistence of Australia’s housing boom more than anything else.

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In a sign of the extent to which growth in house prices has accelerated since foreign investment peaked in 2014, the value of the country’s housing stock has risen nearly 40 per cent since March 2019, compared with 20 per cent between September 2011 and December 2014, data from the Australian Bureau of Statistics shows.

Just as importantly, owner-occupiers, who have been driving the growth in mortgage lending since 2016, are fuelling the boom as investors’ share of the lending market has remained at historically low levels.

Tellingly, it is no longer Sydney and Melbourne that are leading the growth in prices. In the three months to the end of November, values in Brisbane and Adelaide rose 7.4 per cent and 6.5 per cent respectively, compared with 4.3 per cent in Sydney and 2.4 per cent in Melbourne, according to CoreLogic.

As is the case with many other industries, pre-pandemic forces and trends have become more pronounced.

At the top end of the market, where transaction volumes have hit record highs in recent quarters, the overriding factor pushing up prices is the acute shortage of stock.

“The lack of supply is the main issue. Very few owners are selling,” said Monika Tu, founder of Black Diamondz, a luxury property agency in Sydney whose clients are mostly wealthy Chinese who have secured residency in Australia.

Yet, despite the supply constraints, the wider market is showing signs of cooling. The pace of growth in prices has slowed since early this year, especially in Sydney and Melbourne, partly due to tightening credit conditions.

In October, Australia’s banking regulator signalled its concerns over the build-up of financial risks by raising the minimum interest rate buffer banks need to account for when assessing mortgage applications.

Unfortunately, the damage is already done. In its latest review of Australia’s economy published earlier this month, the International Monetary Fund warned about the marked deterioration in affordability since the virus took hold.

Foreign buyers unlikely to rush to residential property once borders reopen Down Under

The price-to-income ratio has surpassed its pre-pandemic peak, while the share of borrowers with high debt-to-income ratios has risen significantly.

Although prices are expected to slow much more sharply next year, the prospect of rises in interest rates – bond markets are pricing in hikes as soon as next year – leave borrowers in a precarious position given that 70 per cent of mortgages are variable rate loans.

On the other hand, more sustainable growth in prices, coupled with the reopening of Australia’s borders, will attract stronger demand from foreign buyers. Jamie Mi, head of the international division at Melbourne-based agency Kay & Burton, expects a “much bigger wave of international interest” in high-end properties, underpinned by Australia’s quality of life and more manageable time difference with China.

Nicholas Spiro is a partner at Lauressa Advisory