Is Now the Right Time to Invest in Australian Real Estate?
The Australian real estate market hit a 13-year high on the 3rd of August, sparking debates and discussions on a possible housing bubble-and-burst. Sydney and Melbourne are leading the property-value charge, with 18.4% and 11.5% respective growth rates in the past year.
The market high took both investors and buyers by surprise. The inevitable questions followed. Has the market reached its peak? Will prices plateau or drop off a cliff? Is now the right time to invest in real estate? According to Sheri Mendel of iBuyNew, there is “no sign for a [market] slow down anytime soon.” Low interest rates and the inflow of foreign investments show that now might be the correct environment to make a real estate investment.
The current across-the-board interest rate set by the Federal Reserve is at 2%, lowered in May from the already low 2.25% that had been set in February. Banks and investors warn that the housing market may be overstimulated if this interest rate is maintained or lowered, but the Federal Reserve remains hesitant to raise it.
Despite the low energy prices (lessening inflation) and the increase of exports as the dollar depreciates, the Federal Government is still wary of the effects of the slowdown of the mining industry. Since February 2011, the price of iron ore in Western Australia has dropped from AUD 1.86 per dry metric ton to AUD 0.81 in June of 2015.
The main reason is the economic slowdown in China, which is impacting that sector the hardest. As revenues and the employment rate drop, the government is reluctant to remove economic stimulation through investments. This means that, for the foreseeable future, interest rates are not likely to rise. For those looking for cheap mortgage rates, this is ideal for their future plans.
The Chinese investment markets are liberalizing, which has led to a sudden inflow of Chinese investors into the Australian real estate market. Chinese investors are buying up properties as a level of protection from China’s stock market fluctuations. Purchases are mainly in Sydney and Melbourne, but as it shows no sign of slowing, it is likely that they will expand to the surrounding areas. With China well en route to its 7% GDP target, there is little likelihood that the economy will deteriorate enough for the movement to slow.
For real estate investors, it means that a new market may be on the verge of rising. While the prices of real estate in the two largest cities have skyrocketed, the surrounding areas have posted an average growth of less than 13%. As the big city markets saturate, however, there is a likelihood that both local and foreign investors will look to the surrounding areas for property development. In all events, the market value does not look likely to fall anytime soon.
The Correct Investment Environment
Low interest rates and high demand--that is a textbook case of an ideal investment environment. Investors and buyers, however, know that they should be looking at more than just statistics to predict the market trends. This close look at the Australian economy, of the reasons behind the low interest rates and the high demand, strengthens the possibility that now is the right time to invest in real estate.