The value of real estate in Australia, especially around the major cities, has risen significantly over the last couple of years with many people now suggesting that Chinese investment could be pushing the market towards a house price bubble. While there is no doubt that property prices in places such as Sydney and Melbourne are starting to increase again, after a period of consolidation earlier in the year, how significant is Chinese investment in the Australian real estate market?
You might be surprised to learn that China is the third largest investor in domestic Australian property according to figures for the 2011/12 financial year. It is estimated that $4.2 billion was invested into the Australian domestic property market by Chinese investors, a sum which is only beaten by US investors ($8.16 billion) and Singapore investors ($5.7 billion). So what can we expect the 2012/13 financial year figures to show?
Increased investment in property
It is almost inconceivable, especially when you bear in mind Chinese investor interest in European property, that we will see a reduction in Chinese investor interest in Australian property. Whether or not it overtakes Singapore and the US as the largest investor in Australia property remains to be seen but Chinese investors are certainly becoming a major force in the worldwide property market.
Quote from PropertyForum : “News that Kevin Rudd has conceded defeat to Tony Abbott in Australia’s election, which sees the return of a Liberal-National coalition for the first time in six years, has prompted a number of investors to question how this could impact the property sector.”
When you bear in mind that Chinese investment in Australian real estate has increased by an enormous 60% over the last two years this perfectly illustrates the ongoing appetite shown by Chinese investors.
Are we moving towards bubble territory?
There are real concerns across the Australian investment scene that Australian real estate prices could be heading towards a house price bubble. There are many new developments planned in areas such as Sydney and Melbourne which some experts believe perfectly illustrates over optimism from real estate investors.
Some Chinese investors are attempting to portray a relaxed long-term view on Australian property although the fact is that nobody wants to see a short-term correction in the market which would have an impact upon property prices. While some experts believe those pushing an additional 17,000 new apartments within inner Melbourne will rue the day they looked to flood the market with high quality relatively expensive property, will the Australian economy bailout property investors?
While the Reserve Bank of Australia has described the Australian economy as “rebalancing” there is growing reason to be optimistic about the medium to long-term. Even though the Reserve Bank of Australia has left interest rates at a record low of 2.5%, one of the reasons why the economy is now pulling out of a recent period of consolidation, this should not be seen as a desperate measure. The economy has for some time now been rebalancing from the recent strong emphasis on mining which effectively maintained Australian economic growth throughout the worldwide economic crisis and this is something which the Reserve Bank of Australia is acutely aware of.
We are unlikely to see a significant increase in Australian base rates in the short to medium term and we are unlikely to see any significant economic slowdown. More likely we should be expecting a gradual improvement in economic growth in the short to medium term and this will help to support the property market and perhaps reduce the ongoing concerns of a house price bubble.