Welcome to this week’s edition of Property Edge, where we delve into the latest trends and developments in the Australian property market. As the landscape continues to evolve, we bring you insights on interest rates, housing finance, and the impact of economic factors on property investment. Stay ahead of the curve by staying informed.

Foreign Investment In Australia’s Residential Real Estate Is On The Rise

The interest of offshore buyers in Australian real estate is on the rise, with searches to buy on realestate.com.au hitting a five-year high in 2023. This surge is driven by factors such as high migration, a lower Australian dollar, and positive price outlooks. While New South Wales leads in rental searches, Victoria and Queensland are more popular for buying. In fact, Victoria had nearly double the number of foreign transactions compared to Queensland in the 2022 financial year.

Affordability seems to be a key factor, with New South Wales having fewer transactions due to its higher median property prices. Offshore buyers tend to prefer capital cities, with Melbourne CBD, the Gold Coast, and Greater Brisbane being top search locations.

Melbourne’s diverse economy and liveability are major attractions. However, some challenges for offshore buyers include restrictions on purchasing established homes, higher stamp duty, and land tax rates.

Despite these hurdles, Australia’s stable economy and strong population growth make it an attractive destination for offshore investors.

As we explore the dynamics of offshore investment in the Australian property market, it’s essential to consider how these trends intersect with the broader economic context. Let’s shed some light on the latest housing finance data, offering a glimpse into the current state of lending and its implications for the market.

Cash Purchases Surge in Australian Property Market

In a surprising turn of events, more than a quarter of all residential properties purchased across Australia’s three largest states were funded entirely with cash in 2023. According to the latest report by Property Exchange Australia (PEXA), Australia’s online property settlement platform, cash-funded residential sales settlements increased by 1.5% in 2023 across Victoria, New South Wales, and Queensland, totalling $129.6 billion.

PEXA’s Chief Economist, Julie Toth, highlighted that cash buyers are significantly influencing the residential property market, contributing to its resilience despite rising interest rates. “The growth of this cash-buyer cohort – at over a quarter of all residential property buyers – suggests that the rate hikes have not affected their ability to purchase property as much as those requiring a mortgage,” Toth said.

The report also sheds light on the demographic profile of cash buyers, who tend to be older, retired, and asset-rich, potentially benefiting from rising interest rates through interest-earning savings.

In terms of geography, NSW recorded the highest aggregate value of cash purchases at $54.9 billion, followed by QLD at $39.4 billion, and Victoria at $35.3 billion. Interestingly, regional areas saw the largest proportion of residential cash buyers, while inner city-urban buyers made up the largest share by value and volume due to higher-priced properties in these locations.

Top performing postcodes for cash purchases in 2023 included Marsden Park (NSW), Surfers Paradise (QLD), and Melbourne’s postcode 3000 (VIC), with Surfers Paradise topping the eastern states with an aggregate value of cash purchases hitting $1.43 billion.

The PEXA Cash Purchases Report provides valuable insights into the evolving dynamics of Australia’s residential property market, highlighting the significant impact of cash buyers on market trends and affordability. PEXA’s comprehensive data, which tracks whether purchases require an incoming mortgagee or are made without any debt, offers a unique perspective on the market’s cash transactions.

Housing Finance Trends Reflect a Resilient Australian Property Market

The Australian Bureau of Statistics reports a 3.9% decrease in new housing loan commitments, with a 4.6% reduction in owner-occupier loans and a 2.6% fall in investor loans. Despite this, the overall lending in 2023 saw an 8.5% year-on-year increase, showcasing a robust housing market.

First-home buyer loans peaked in late 2023 but experienced a 6.9% drop in January 2024, still reflecting a 4.4% increase from the previous year. The rising property prices in 2023 led to higher loan values for first-home buyers.

Property prices remain strong in 2024, supported by factors like population growth and stable employment conditions. Investor lending decreased by 2.6% month-on-month in January 2024, but there was an 18.5% year-on-year increase, particularly in regions with tight rental markets and notable property price growth.

Rents are rising across most capital cities, though the growth rate has slowed compared to 2022. The challenging rental market is potentially driving first-home buyers towards purchasing properties for more stability.

The Australian property market’s main challenge continues to be insufficient housing supply. Despite increased investor activity, the solution lies in boosting housing stock, especially in major cities. The rental market is expected to remain tight in 2024, which could keep driving demand from first-home buyers and investors, supported by the stabilisation of mortgage rates and potential rate cuts.

While housing finance data provides a snapshot of market activity, the future direction of interest rates remains a critical factor for investors and homeowners alike. Now we turn to examine the latest insights from economic experts and former RBA governor Philip Lowe on the potential trajectory of interest rates in the coming months.

Interest Rates: A Balancing Act Amidst Economic Uncertainty

Australia’s economy experiences a sluggish quarter, with a 0.3% decline in household spending and a mere 0.2% GDP growth in the December quarter, the prospect of another interest rate hike by the Reserve Bank of Australia (RBA) seems increasingly unlikely. CBA’s chief economist, Steven Halmarick, points to cautious consumer behaviour and predicts that the RBA’s rate-hiking cycle may have reached its end, with a potential rate cut on the horizon as early as September 2024.

However, former RBA governor Philip Lowe presents a more cautious outlook on interest rates. Speaking after his appointment as the next chair of Future Generation Australia, Lowe aired concerns that stubborn inflation could keep interest rates higher for longer. He emphasised the importance of ensuring inflation is sustainably back to target before considering rate cuts, aligning with the RBA’s cautious stance under Governor Michele Bullock.

Despite the current high-interest rate environment, the housing market remains resilient, with property values continuing to rise. Factors such as population growth, tight rental markets, and stable employment conditions support this resilience. However, the rental market faces challenges, with significant increases in rents across most capital cities.

The RBA’s upcoming monetary policy interest rate decisions will be closely watched as they attempt to balance the need for inflation control with the goal of supporting economic growth.

Thank you for joining us in this week’s edition of Property Edge. As the property market continues to navigate through economic uncertainties and shifting trends, we remain committed to providing you with valuable insights to inform your investment decisions. Stay tuned for more updates and analysis in our next issue.

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