If 2014 was the year of the foreign investor, expect 2015 to be the year of the expat returning to the property market. Having given up on Aussie housing in large part due to the high Australian Dollar (AUD), expats are set to enter the market again as the dollar sinks.
Whilst house prices have steadily risen in Sydney and Melbourne for the past 2 years, when priced in USD, Pounds, or Euro, Sydney housing has not risen at all in real terms for expats.
Sure, house prices have risen strongly, yet the recent fall in the dollar has more than offset the rise for those living abroad, earning one of the major currencies.
An interesting point about the apparent ‘property bubble’ in Australia is that the recent price rises have been confined to Sydney and Melbourne. Overall, when viewed through the eyes of an expat, Australian housing has actually dropped in price outside the Sydney and Melbourne markets.
A return of expats to the market will offer some support to house prices, which are no doubt going to be pressured on many fronts. Unemployment is rising, confidence is wobbly, rents have fallen away and many buyers are fatigued at watching prices go up for two years in a row.
There are strong and contradictory arguments as to why the property market will perform well in 2015 and conversely, why it will see a correction.
Interest rates are now tipped to fall further, which will push the AUD lower again and in the hope of stimulating confidence in the broader economy. The lower AUD may also see foreign investor’s money continuing to flow into the property market.
There are a few key markets that will influence how the market performs throughout the year.
Expats and overseas investors
Expats have not seen Aussie housing this affordable since the GFC when the AUD hit $0.625 against the USD in late 2008. Since then the dollar reached a peak of $1.10, spending two years at/or above parity. The AUD at these elevated levels terminated expat interest in Aussie housing.
The RBA continually talked the AUD down throughout 2014 to the point where it now seems we are set to see sub $0.80 against the USD. If the dollar does settle below $0.80, expats will be tempted to enter the market. As the dollar has fallen from $1.10 to $0.85, expat buying has been muted. There is a price point at which the buying becomes compelling though. The lower the AUD goes the more likely we are to see expat buying.
Another subtle point in this equation is the employment sector is improving in many other countries as Australia’s unemployment hits 12 year highs. There may be a stronger desire for talent to head on a working overseas holiday taking advantage of the stronger incomes abroad.
In regards to overseas investors, debate has raged as to whether they are or are not buying established housing against Foreign Investment Review Board (FIRB) regulations. And if the foreign investors are flaunting the rules, to what degree is it impacting on house prices? Debate has raged on this front and will continue to do so throughout 2015.
The FIRB rules differ between existing and new stock. Foreign investors are entitled to purchase brand new developer stock without restrictions. In turn, a lot of the developer stock that was being built as affordable stock for first home buyers has suddenly become hugely in demand with foreign investors. The drop in the AUD will only inspire foreign investors further.
First Home Buyers
First home buyers are the true victims of the booming market. The story for first home buyers is unlikely to improve in 2015 either. First home buyer incentives were put in place for developers to build more stock, but the reality is developers have found they can achieve stronger prices in other segments of the market.
Rents have dropped and prices have risen. The end result is yields have gone from about 4 to 5% net in 2012 to under 2%. This destruction of yield is likely to see investors wary of buying at the top of the market. Any investment play is likely to be reliant on capital growth rather than yield. With interest rates at record low levels, housing at these prices is quite simply more appealing to home buyers rather than investors. Investors have been outbid by emotional home buyers for the best part of 18 months and this looks set to continue throughout 2015.
Baby boomers are beginning to consolidate their affairs as they near and/or reach retirement. The recent strong market has seen an increasing number of baby boomers sell down their real estate holdings. Whether it’s downsizing from the large family home or unloading some of the investment properties, there is little doubt that the movement of wealth by baby boomers is going to impact on the market in 2015.
Boomers have not only shown a panache for selling. They have been enthusiastic buyers of luxury apartments. Apartments with water views, well located to amenities and close to the CBD/Harbour have been in increasing demand.
The key to home buyers continuing to drive house prices is confidence. Confidence on many fronts though.
Confidence in their employment, confidence that the market will continue to rise/hold, confident that rates are going to remain low, confident in the broader economy.
Whilst ever home buyers remain broadly confident, positive sentiment toward housing will remain making home buyers the largest determining factor of the markets fortunes in 2015.