House Prices Continuing To Fall As Foreign Investment Declines

Two headlines caught my eye this morning.

The first one from The Sydney Morning Herald: ‘Sydney, Melbourne bear brunt of fall in housing market confidence.

The headline refers to the ANZ/Property Council survey, which tracks Australian confidence in the housing market.

Needless to say, with recent pricing drops, people are less confident on property prices, especially in NSW and Victoria as you can see below.

Property Prices in Aus

Source: ANZ/Property Council

[Click to open in a new window]

Sentiment has soured on the property market. Mainly because there is less credit available and there are expectations that the market will keep falling.

The property market has been seeing falls for the last 12 months, with Sydney (6.1%) and Melbourne (3.4%) suffering the largest drops. These two cities make up 60% of the Australian property market by value, which means they are dragging down the whole market with them.

These two Australian capitals have seen large growth in recent years, as you can see in the graph below.

Change in dwelling values in last ten years

Source: Corelogic

[Click to open in a new window]

While these two Australian capitals have seen large growth, salary growth has been low. With salaries barely growing, property increases at that rate are very much unsustainable.

It is true that much of that growth has been pushed by foreign investments.

Are you prepared for an Aussie housing collapse? Find out before it’s too late.

Foreign investor’s interest in Aussie property is sizzling down

This from Domain:

Chinese tourists taking advantage of the national Golden Week holiday used to flock to Melbourne at this time of year, looking to invest in Australian property. 

‘But agents and industry insiders say Chinese investors just aren’t arriving in the same numbers they once did. 

‘“Last year for instance, there were loads of tourists getting out of cars with cameras and looking at the houses,” RT Edgar Toorak director Jeremy Fox said. “I had a property in Hopetoun Road. A minibus pulled up and about 30 people got out to look at the house. 

‘“We’re not seeing too many coming out here at the moment.” 

‘Chinese demand for property has been falling since last year when market conditions sharply pivoted, locking many foreign buyers out of the picture. 

‘During the 2015-16 financial year, Chinese investors got approval for nearly $32 billion in loans. In the next financial year, it fell to just above $15 billion.

As reported by Yahoo Finance, Chinese investment in real estate sector saw a high influx in 2015–16, but has since dropped from its peak as you can see in the graph below.

Chinese investment in Real Estate in Australia

Source: Yahoo Finance

[Click to open in a new window]

You see, Chinese investors are getting hit with a double whammy. For one they are struggling to get their money out of China, and Australia has also been cracking down on investment financing.

Digital Finance Analytics (DFA) recently published an interesting chart on the property investor intentions for the next 12 months.

As you can see below, investors looking to transact over the next 12 months has plummeted from about 50% a year ago, to 20% today. The main difference is that most of those 50% a year ago were looking at buying, while the majority of the 20% now are looking at selling.

And, notice that the amount of people looking to trade down on property (green line) is also rising.

Graph showing intention to trade

Source: Digital Finance Analytics

[Click to open in a new window]

Plus, there is the question of increasing interest rates.

US bond rates are rising, which could mean higher interest rates coming.

Economist Warns: Overvalued Housing Market Set to Implode. Download the free report now.

Get ready for higher rates and less credit

Since 2008, central banks have been keeping rates low. Yet now, with the US Federal Reserve looking to normalise rates, the tide could be changing. Higher rates and less credit will put pressure on highly indebted property owners.

And, there is a lot of supply about to hit the market too. You can even see it if you walk around Melbourne. There are a lot of apartments on the verge of competition.

Obviously, this is all good news for people who are priced out of the market, but not for sellers.

Yet, even with the recent 6% drop in value in Sydney, UBS is still classifying Sydney’s property market as overvalued, as you can see in the graph below.

UBS Global Real Estate Bubble Index

Source: UBS

[Click to open in a new window]

You see, the falls are mild compared to how much property has grown in the last 10 years. To make property more affordable, you still need to see either property prices fall farther or salaries to increase.

With investor activity retreating, increasing rates and people struggling to get finance we could see even more falls in property prices.

Oh, before I forget. What’s the second headline that caught my attention?

From ABC: ‘Avocado growers say prices have hit their peak while supply continues to skyrocket.

More good news for those looking to get into housing…

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Revealed: Harry Dent’s warning to Australians. Download the free report now. Are You Prepared for an Aussie Housing Collapse? Find Out Before It’s too Late.


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money