The global asset manager believes that the sharp rise in foreign capital pouring into the Australian property market is a cause for worry.
In its weekly economic briefing, Standard Life Investments provided an overview of property markets across Asia, the US, the UK and Europe. At a more micro level, the asset manager said that the issue of house price growth and indebtedness are a more pressing problem.
The company said: “In the developed world, smaller open economies such as Australia, New Zealand, Canada, Norway and Sweden have all been displaying signs of excesses. Low interest rates and supply bottlenecks have certainly facilitated price appreciation.
“However, the imbalances appear to have been amplified by a surge in international capital inflows in recent years, most noticeably out of China.”
In Australia and New Zealand, a housing construction boom has coincided with rapid price growth, with real house prices jumping 37.4 per cent and 50.1 per cent, respectively, since 2012.
“With affordability measures now stretched, there are rightly concerns about whether a bubble has formed and what might lead to a correction.”
Standard Life noted that the rapid price appreciation in Australia has not been universal, with Sydney and Melbourne benefitting while markets like Perth and Darwin continuing to struggle.
“A more troubling trend in recent years has been the increase in overseas capital inflows into these cities,” the group said.
“Property approvals for overseas home buyers jumped sharply in recent years. Regulating these flows can prove problematic, forcing policymakers to choose between housing affordability and the principles of capital and trade openness.
“Fortunately, the latest data suggests [that] the pace of foreign purchases is starting to moderate, providing timely relief.”
The asset manager believes that there is evidence that New Zealand’s cycle is turning. While national house price growth remains healthy, prices in Auckland are now declining year-on-year.
Standard Life said: “The new Labour government has arrived determined to tackle the affordability issue, calling for tighter restrictions on foreign ownership, higher capital gains taxes, tighter immigration while increasing the construction of affordable housing.
“This is likely to further take some of the heat out of property prices and reduce the risk of a more disruptive correction further down the line.”