With a number of key drivers stimulating Australia’s foreign investment demographics, Savills’ Australia have released an overseas buyer’s guide which analyses market conditions.
Author of the ’17 buyer’s guide and Savills’ head of residential research, Sophie Chick, looks at why the demand from overseas buyers is concentrated in Sydney and Melbourne.
As the capital of New South Wales, Sydney has the largest population of all Australian cities. Over the past 10 years, the population has increased 18.2 per cent to over five million people. It is universally recognised as a global city.
Forecasts suggest this trend will continue and by 2036, the city’s population will reach 6.4 million.
Head of residential research Sophie Chick said the market has benefited from strong economic conditions, low interest rates and an imbalance between demand and supply. More recently, while Sydney’s property market continues to see some of the strongest growth in Australia, the rate of growth has slowed.
“The slowdown can be partially attributed to the regulatory measures to slow the amount of bank lending to investors that were introduced in late 2014 and March 2017,” she said.
“In response, banks tightened lending criteria for property investors particularly for foreign investors, which is likely to lead to the proportion of bank lending to investors reducing and may contribute to an easing of house price growth.
“However, given the historically healthy returns, tax benefits and the limits placed on superannuation contributions, investing in residential property is likely to remain an aspiration for many.”
The slowing price growth reflects stretched housing affordability across Sydney. There is little potential for owner-occupier demand to push prices up at the same rate as seen previously, so home buyers and owners need to either stretch their finances further or save for longer.
“Foreign investors also face higher entry costs to the market in NSW with a four percent stamp duty surcharge on foreign property buyers in 2016, which increased to eight percent on July 1, 2017,” Chick said.
“However, the impact of this is mostly confined to the new build market given foreign buyer restrictions.
“Overall, it is expected that the rate of price growth will slow, with prices remaining on a ‘high plateau’ perhaps for some time. However, as Sydney’s population continues to increase and infrastructure projects complete, the long-term prospect for the residential markets remain sound.”
Melbourne has gained global recognition through boasting a high quality of life while attracting high calibre employees who contribute to the strong local economy. As the capital city of Victoria, Melbourne accounts for almost a quarter of economic activity in Australia, second only to NSW.
There has been significant demand for Melbourne real estate as its population has increased by nearly one million people to 4,750,000 in the last decade.
Chick suggested the strong population growth will continue, with some estimates indicating the city will overtake Sydney to become the largest city in Australia over the next 20 years.
“Unlike Sydney, Melbourne does not have physical barriers, such as mountains and national parks, constraining expansion – this means Melbourne’s growth is less restricted,” she said.
“Much like Sydney, the property market in Melbourne faces a number of challenges.
“The new mortgage lending regulations, which target investors, are a national policy and there is an additional seven percent stamp duty for overseas buyers.
“Like Sydney, the impact of this is mostly confined to the new build market given foreign buyer restrictions.
“A significant difference when compared to Sydney is the price point. While property affordability in Melbourne has been stretched, prices remain on average 30 percent lower than in Sydney,” she said.
“Overall, Melbourne can be described as a high demand and high supply market. There has been much rhetoric surrounding an oversupply of units, few appreciate the relative population growth performance.
“In line with Sydney, property price growth is likely to slow this year, with prices remaining on a ‘high plateau’ perhaps for some time.
“However, as Melbourne’s population continues to increase, the long-term prospect for the residential markets remain sound.
“We expect our key cities to remain attractive investment destinations. Sydney and Melbourne will continue to provide the security, freedom and space together with a high quality of life that is so attractive to foreign buyers who seek their own piece of the Australian dream.”