Word is going round again that the Australian property market is up for a crash. Over the last five years or so, this topic has been a popular refrain among doomsayers, yet Australia has managed to avoid the Global Financial Crisis and property prices have gone up, almost doubling in Sydney.
True, there has been a slight dip in investment now compared to last year, but the numbers are still strong according to CoreLogic RP Data’s latest report in October and FIRB’s latest annual report for the FYE 2014-2015, if that is anything to go by. Prices have continued to rise with Sydney and Melbourne leading the pack. And, for all the concerns that have been voiced, capital city auction clearance rates remain high, led by Sydney (>80%) and Melbourne (>70%).
Taking a step back, the prediction about a property crash is resultative of and/or predicated upon several factors including:
- General unaffordability of property especially in Melbourne and Sydney
- Tighter regulations on foreign property ownership in Australia
- Lower rental yields
- Tightening of lending policies to foreigners by Australia’s top banks
- Property (over)supply in cities like Brisbane, Melbourne & Sydney
We’re not about to ‘cry wolf’ as the future of the Australian property market should be based on the history of its performance and on facts. Here’s our take on why the Australian property market won’t crash.
Fact #1: Robust Population
Australia has been charting robust population growth. From 2013 to 2016, its population increased by approximately 1 million! Part of this growth is attributable to immigration, with the large majority of immigrants moving to Sydney, Melbourne and Brisbane. An increased population usually results in increased demand for housing. Logically, the reported oversupply of apartments should be absorbed by the incoming population.
Latest demographic data from the Australian Bureau of Statistics (ABS) showed that over the 12 months, the national population increased by 1.4% which translates into an increase of 327,610 persons. Charting the growth is the state of Victoria, as Melbourne remains the powerhouse of population expansion in the country.
Fact #2: Sound governance & banking system
The state governments of Victoria, NSW and Queensland have imposed stamp duty taxes on foreigners while the FIRB is now levying new fees on foreign buyers. In the meantime, Australia’s main banks have tightened lending policies to foreigners, at the same time that the Reserve Bank has cut interest rates — now at the lowest level on record. The tightening measures imposed by the government and financial sector is a means to keep a lid on house prices.
On the issue of rates reduction — it is a move to stimulate the property market. Reduced rates encourage more people to take loans and buy property. It seems unlikely that the bank will implement this if the property bubble was a concern as reduced interest rates will mean more people buy and prices rise further.
Fact #3: Fragmented market
Australia’s property market is fragmented. It is inaccurate to blanket the entire market as one, as each state is at its own stage of a property cycle. Even in each state, different segments of the markets behave differently.
In Sept 2016, demand for houses and apartments nationally grew 3.1% and 1.9% respectively, yet it was dragged below April levels by a softening WA market. Demand was high, driven by Sydney and Melbourne, yet in WA there was reduced demand. And yet, despite the decline, pockets of Perth bucked the trend: demand for WA houses and apartments fell 6% and 2.9% respectively, but demand for dwellings was at 2.9% increase in September.
Fact #4: Investor Appetite
Offshore investor interest is still high despite the 4 main Australian banks pulling the brakes on lending to foreign buyers earlier this year, as other banks continue lending. HSBC, for example, is enjoying steady lending to foreigners especially with the cuts to interest rates this year. This is the 12th cut since 2011 and the lowest since. In addition, tightening governmental policies have done little to dim the allure of Australian properties among Asian investors.
Fact #5: Sound economy & low unemployment rate
Australia generally enjoys a sound economy, despite the slight dip in its performance this year. But growth is poised to strengthen in 2017 as the nation continues to transition from a mining-based boom to non-resource drivers of growth. Australia currently enjoys the lowest unemployment rate in the last three years according to the Australian Bureau of Statistics and the government is expecting employment growth to remain solid.
The property market has always been a cyclical one. Too many doomsayers have come forth in the past, but none of their predictions have come to pass. This is not to say that everything is hunky-dory. Yes, we think there will problems — there will be a correction and moderation in certain segments of the housing market just as there had been before; as an example the CBDs in major cities like Melbourne and Sydney have already been correcting over the past few years (we have been advising clients to stay clear of the CBD if they are expecting strong short term capital growth). Yes, there is all that, but certainly not enough to cause the economy to implode.
CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence.
Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.
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