Australia’s property market – from an analyst’s perspective

A recent depreciation of the Australian dollar effectively makes the Australian property market, and all assets for that matter, look cheaper to foreign investors.

The sudden surge in the Chinese buyers fuelling the Australian property market all began when policy makers in Beijing started imposing restrictions on China’s property market to prevent a bubble forming in prices, forcing investors offshore.

There’s no indication that foreign appetite for Australian property is going to diminish in the near-term. In fact, there’s evidence that it may increase for commercial property – cap rates are still attractive on the East Coast.

Property prices in Sydney clearly appear to be over-inflated, and we expect to see prices deflate at some stage as locals increasingly become priced out of the market and supply catches up with demand. There’s no doubt that a surge in offshore investment has largely been fuelling the rally, but this pace may not be sustainable in the long run.

A sudden and powerful surge in demand for Australian property and the associated leap in prices are always going to be problematic for first home buyers, especially when that demand stems from offshore. The severity of this bull market means that many first home buyers may be forced to look lower or even be left out in the cold completely.

Given the speed and power of this bull market, it’s only natural that prices lower at some stage; although this hinges on one of two things happening: either foreign demand dries up or supply overtakes demand – whichever event would likely result in a natural correction before an eventual recovery in prices.

In the coming months, there may be further investment in the manufacturing and mining industries. At the moment, Australia is looking to non-resource parts of the economy to pick up the slack being left behind by diminishing mining investment. There are some signs of life from these parts of the economy, but the outlook for the broader economy remains bleak.

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