The grandly named US based International Strategic Studies Association (ISSA) has caused something of a storm in Australia with claims that the Australian real estate market could be just six weeks from collapse. The association blames recent bank policy changes across Australia which could make it more difficult for foreign investors to borrow money. However, many of the claims made in this sensational newsletter have been ridiculed by experts.
Strong Australian property market
We only need to look at Australia’s more prominent cities such as Melbourne, Sydney, etc to see that property prices have gained massive momentum in recent times. Many experts believe that some areas of the Australian real estate market could be overvalued in the short term. However, these are the same experts who have been calling the end of the Australian property boom for years.
It is well recognised that the recent boom in Australian property prices cannot go on forever at its current pace. There will be periods of consolidation, certain areas of the market could come under pressure but this is all part and parcel of an investment market. We may find that some investors are looking for an excuse to bank profits but there is evidence to suggest that there are many buyers waiting in the wings.
Foreign investment in Australia
It is well documented that overseas investors have been ploughing money into Australia for some time with the mining industry proving a particular attraction. There was also been growing interest from Chinese investors looking to offset difficulties in their home real estate market. Indeed a number of tabloid newspapers recently picked up on increasing foreign investment which prompted an investigation by the Australian authorities.
The investigation found that while there has been a significant increase in foreign investment in Australian real estate this has had minimal impact of prices compared to domestic demand. Even though this demand is expected to grow stronger in the future it is nowhere near dictating Australian property prices – as some would have you believe. However, rather than leave it too late the Australian authorities have introduced an array of restrictions on overseas investment – even prior to the forthcoming banking policy changes.
Reducing pressure on prices
If this sensationalised report on Australian property prices makes investors step back and think again, is that really a bad thing? Like any other popular real estate market around the world, some investors have been following the trends as opposed to looking for value. The more short-term upward pressure placed on localised property markets the more chance they will become “overvalued” at least in the short term. This then increases the chances of the market overheating and an adverse reaction from those looking to bank profits amid concern about the short term outlook.
To say that the Australian authorities have but six weeks to save the Australian real estate market is sensationalism at its finest. The idea that restrictions on foreign investment/borrowing will in some way bring down the Australian property market are seen by many as far-fetched. There may be some foreign investment transactions which are renegotiated or perhaps cancelled but there is evidence to suggest there are many domestic investors waiting in the wings to take up any slack.