Who’s Been Buying Australian Real Estate?
Can you answer these basic questions on the current state of the Australian real estate market?
- What’s in greater demand, brand new or existing homes?
- What percentage of buyers are investors, versus owner-occupiers?
- How much buying activity is currently coming from overseas?
- How efficiently are first homebuyers entering the market?
As property investors, knowing the answers to these questions can be quite useful. If we know who is buying, we can better understand what is driving demand, and then tailor our investing strategies to provide what our target market wants. It also helps us form an opinion as to what the future might hold for property prices, as we consider the potential limitations and constraints of those buyers who are currently driving growth.
About five years ago, National Australia Bank (NAB) began surveying real estate professionals four times per year to answer these questions and get a handle on what’s happening in our real estate market.
The NAB Residential Property Survey: Q4 2014 was just released, and contains some interesting insights into who has been buying Australian real estate, and for what purpose.
Their findings are based on a survey of approximately 300 respondents consisting of real estate agents and managers, property developers, asset and fund managers, valuers and property owners.
Here’s the lowdown on the NAB’s most recent residential property survey:
The Demand for New Housing
Australia-wide, foreign buyers accounted for 14.8 percent of all new property purchases. This is down two percent from the previous quarter.
However, in Victoria, foreign purchases have been on a steady rise, now at 32.5 percent, up from 24.8 percent in the previous quarter.
That’s a massive one out of three new homes in Victoria now being purchased by overseas buyers. Clearly, our Asian friends to the north are big fans of Melbourne.
Nationally, the majority of these foreign buyers are snapping up apartments, accounting for 53 percent of all purchases. This is not surprising considering the popularity of apartment life in many Asian countries. New house and land packages made up 31 percent of the total, and 16 percent are redeveloping older sites. Again, Victoria is a bit of an anomaly, with fewer foreign buyers demanding apartments, just 44 percent, with more wanting homes, at 38 percent.
So, what about the local Aussie market? About 33 percent of new purchases throughout Australia went to resident owner-occupiers and around 25 percent went to Australian investors. In this report, the NAB separated first-home buyers between those buying for investment, versus those buying to live in the property. While about 17 percent of new purchases went to owner-occupiers buying for the first time, eight percent of the total went to first-timers who purchased for investment purposes.
The Demand for Existing Homes
As you would expect, the resident owner-occupier market is dominating demand for established properties, making up 42.6 percent of the total. Aussie investors were responsible for snapping up 22 percent of existing homes for sale.
Separate from these statistics are the first home buyers. The NAB survey estimates that 16.1 percent of total demand for existing homes included first home buyers aiming to live in their property. And again, quite a few are opting to rent their first home out, with 9.3 percent of all existing homes sales bought by first home buyers for investment.
While the Foreign Investment Review Board makes it harder for overseas buyers to acquire existing properties, demand still came in at 8.7 percent of total national sales.
What We Can Learn From the NAB Survey
There are three main things we can glean from the results of the NAB Survey. They include:
1. Foreign Demand Remains A Significant Driver For Growth
If you combine the figures for both new and existing home sales, foreign buyers are purchasing approximately one in 10 homes overall.
If we look at the new home market alone, foreign buyers account for one out of seven property sales. In Victoria, that number is one out of three sales.
Just last week, we saw two large purchases by Chinese investment firms in Australian commercial property. China’s largest private investment firm, Fosun Group entered into a joint venture deal with Australian company, Propertylink to buy a fully government-leased Sydney office block for A$116.5 million.
Dalian Wanda, the real estate group owned by China’s second-richest man, Wang Jianlin, just agreed to pay A$415 million for Gold Fields House on Sydney Harbour. They plan to invest $1 billion to redevelop the site.
In both residential and commercial property, we’re seeing some huge investments in Australian properties from overseas. We need to ask, “How sustainable is this trend?” Furthermore, “What would happen if this overseas investor market suddenly dried up?”
Thanks to a weak Aussie dollar and some massively inflated property values in China, we’re continuing to see the Chinese yuan cross our border. But what will happen when the Chinese property bubble bursts? China’s economy is already slowing, and some believe a Chinese property collapse could be the next black swan event.
It’s not a question of if, but rather when, so when there are fewer yuan looking to exit China, you can expect a diminished demand for property here at home. There is also a possibility of an epic ripple effect, as our economy is growing increasingly more intertwined with China. Hopefully we’ll see a slow and measured correction in Chinese asset prices. The problem is, rubber bands don’t tend to snap back gradually.
2. Investor Demand Remains “Unbalanced”
While investor demand for property is down from the previous quarter, it’s not down enough to matter all that much. We continue to see investors contributing to approximately one out of four property purchases.
Several months ago, the RBA spoke up and said the Australian housing and mortgage market is becoming “unbalanced,” due to investor demand being out of proportion to rental demand.
Their primary concern was that investor lending is growing faster than lending for owner-occupiers, bringing risks to the economy. Here are the RBA’s exact words:
“At this stage, the main risk from this strong investor activity appears to be that the extra demand could exacerbate the housing price cycle and increase the potential for prices to fall later.”
While the RBA’s hands seem to be tied when it comes to raising interest rates to cool investor speculation, they’ve begun talks with the Australian Prudential Regulation Authority (APRA) to propose possible lending restrictions similar to those introduced in New Zealand last year. After this week’s rate cut, I’m sure those talks have intensified.
3. First-Home Buyers Are Choosing Speculation Over The Australian Dream
First home buyers are purchasing almost 10 percent of all property as an investment, rather than a place of residence. Why are they not living in these homes? I can think of two reasons:
First, thanks to point number one and two above, they can’t afford to buy the property they really want. Many keep renting where they want to live, while they buy a property in a cheaper suburb to rent to someone who has a lower standard of living.
Others are probably buying where they want to live, but planning to move in later, once they’re able to afford the mortgage payment themselves.
Second, they are speculating that values will continue to rise, and since they don’t want to be left behind, they buy just to get their foot in the door of the market. There’s a fear that property values will never cool off, so there will never be a better time than now to buy. When you’ve never seen properties go down in value, it’s hard to believe that it can actually happen.
The market is pushing the boundaries of affordability, leaving first homebuyers with fewer options. While delaying the purchase of a home in order to build wealth can be a very wise move, I fear that the common “buy, hold and hope” strategy may not pay off.
What Do You Think the Future Holds?
If you have a look at NAB’s survey, you’ll notice their property price expectations for the next two years. But, what really matters is what you think the future holds for Australian property.
If you have an opinion, take a moment now to leave your thoughts in the comments section below.
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Great article. Thanks for sharing that NAB report
Thanks @wCha. Where do you see Aussie property prices moving in the next few years?
The Australian economy seems to be worsening, its deteriorating in terms of its rate of growth and it is tied to China’s economy through commodities. With China’s economy is slowing down, we also feel the effects here in Australia. I feel this is the reason why the AUD is lower and also the reason why interest rates are low.
With interest rates down at a historic low and signs of it going down lower, I suspect the flow of money will be injected into property and share investments from baby boomers as well as first home buyers. If the RBA does not mandate a stricter lending policies similar to what they have done in NZ, then we can see property prices spike in the short term which may eventually lead to a nasty correction later down the track. That’s my take on what is happening.