Australian property market 2015 forecast: Good news for borrowers and real estate owners
The reserve bank of Australia may not have cut the cash rate today but another 0.25% rate cut before the end of the year appears likely if not inevitable. This is good news for borrowers and other factors also make for good news for property owners as prices set to continue to grow over coming years.
Why interest rates are likely to remain low or get lower in the near future
Considerations by the Reserve Bank of Australia in reviewing and setting the cash rate included:
- fluctuations in the economic conditions in Greece and China;
- below average growth in the Australian economy;
- inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate;
- elevated but unchanged unemployment; and
- the need to depreciate the Australian dollar (higher interest rates encourages buy and appreciation of the Australian dollar)
It is reported that a cut to the cash rate at this stage may ‘spook’ consumer confidence. It is also likely that the reserve bank board knows that a cut is needed but would rather postpone it so that in future if more stimulus is needed there is still some rate left to cut.
Why real estate prices are likely grow
Real estate prices are linked to interest rates to a large extent as most people know. So the current (low) interest rates are already stimulating the housing market. If there is a further cut, which is likely, then this will stimulate the housing market even more!
But there are other factors that will compound price growth in the Australian property market. However, these are not as broad based as a rate cut.
Australia’s two largest cities have already had property price gains but now, according to SQM research, the amount of housing stock on the market has plummeted. In Sydney, the housing stock on the market has dropped 15.7% compared to june last year and in Melbourne the housing stock on the market has dropped a massive 20.2% compared to this time last year! With less properties available for purchase buyers will need to fight harder (and pay more) for properties in these two markets.
Australian population growth is creating demand for housing
With Australia’s population growth one of the fastest in the developed world the demand for housing in on the increase. Sydney is Australia’s largest city, Melbourne is Australia’s second largest city and is forecast by the Australian Bureau of Statistics to grow at a faster rate and will become Australia’s biggest city (population wise). Large populated cities tend to have high demand and high property prices as more and more people compete to purchase. This is not new but since it is such a driving force in the property market it needs to be mentioned.
Massive investment from overseas investors in Australian property
In addition to migrants, investment from overseas buyers is helping the property market grow. China with millions of millionaires have become Australia’s largest foreign investors in Australian real estate and are forecast to invest billions more over the next seven years. Some of these will be immigrants or parents of immigrants others just investors. These property buyers are buying in Australia’s largest cities and tend to focus on areas where there are already a large number of Chinese residents. Glen and Mount Waverley in Melbourne are excellent examples of that. These suburbs are popular among Chinese buyers. This has led to Mount Waverley becoming Melbourne’s highest growth suburb. These and other Chinese hot spots are likely be growth hot spots into the future.
As mentioned by the Reserve Bank of Australia there are some economic woes in China with the Chinese stock market showing a crash of sorts in recent times. This will only serve as an incentive for more wealth Chinese to diversify their investment offshore and with their love of real estate and proximity to Australia, the market here is sure to benefit.
Impact of the Australian dollar on property prices
Another factor fueling the Australian property market is a cheap Australian dollar, which the Reserve Bank of Australia only wants to be cheaper. When the dollar is cheaper our exports become cheaper and we can sell more of them. But our properties also become comparatively cheaper and foreigners can afford to spend more and again pushing up prices.
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