Favoured for its world-class education, steady regulations, and high quality of life, Australia has been a favourite for many residential property investors. They have continued to purchase property in popular Australian cities, often using them as second homes or renting them out for extra income. Figures in 2016 showed a marginal quarter-on-quarter increase of 1.6% for home values in Australian capital cities, and rental yields per annum continued to rise.
Due to strong demand, the average yield nationally is 4.64% and can be even higher depending on the city. We take a look at the current sentiment on this meteoric growth and how the market players have shifted.
Foreign Investment Remains Steady
On the Australian front, there have been some concerns over the country’s underperforming economy along with its currency’s continued weakness. Australians seem to be overcommitting to their housing loans as a result of overly low interest rates, and there may actually be an oversupply of high-rise residences in large cities.
However, industry authority BIS Oxford Economics who earlier predicted that Melbourne specifically would experience a glut in the industry, have revised their predictions, stating that conditions are not as dire as previously predicted. This is partly due to population growth figures of 109,000 more people than previously expected, and will likely result in an undersupply instead of an oversupply.
Investor sentiment seems to fall in line with this, and buyer appetite remains steady despite the Australian government’s recent attempt to rein in foreign purchases. The Australia Foreign Review Investment Board reported that Southeast Asians are one of the top investors in Australian property, and the 2016 Asia Property Market Sentiment Report by iProperty Group also found that many Singaporean respondents are interested in investing in Australian residential property.
South Australia and Western Australia topped the list of most popular locations, and respondents believe that Australian properties will be good investments because of the country’s political stability and economic growth.
The country’s economy is expected to grow around 3% per annum over the next three years and is above average compared to other advanced economies. Its diverse economic composition (which includes a large service industry) is one factor that continues to buoy the Australian economy and inspire foreign confidence.
Flinders Street Railway Station, Melbourne
Changing Players in the Property Market
The largest foreign investor in Australian property in recent years has been China. In 2015, Chinese investors put approximately A$6.8b into Australian residential and commercial real estate. China’s economy, regulatory environment, and currency depreciation have resulted in its wealthy citizens flocking towards overseas investments to protect their assets.
The high amount of capital flowing out of the country prompted the Chinese State Administration of Foreign Exchange to introduce new regulations in November 2016. The agency has to approve outgoing overseas payments of more than US$5m, and from 2017 onwards, another rule was put in place to limit an individual’s yearly foreign currency holding to US$50,000. These limitations have contributed to Chinese investments in Australian real estate falling by a whopping 69% in the first half of 2017.
Despite it’s geographical size, Singaporean investors then took the lead and became the largest source of foreign capital for Australian commercial real estate during that same period of time. This could translate to good opportunities becoming available for Singaporeans that are interested in residential investing, as property prices may drop in response to reduced Chinese demand.
When it comes down to it, investing in property is almost always a long-term medium-risk endeavour. Before making a decision, investors are advised to keep up with the latest market sentiment and any available growth data. Even though the Australian market is outwardly appealing, investors should remain cognisant of the risk that the bubble might burst.
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