Foreign demand has influenced house prices in Melbourne to some extent over the years. Our housing market is reasonably open to foreign buyers, and the value of the Australian dollar affects the way international investors view real estate in Melbourne.
The graph below illustrates the inverse relationship between Melbourne house prices and the Australian dollar over the past 20 years. When the AUD is low, foreign buyers get more for their dollars, and house prices in Melbourne tend to go up.
This relationship was most pronounced in the early 2000s, where for almost 5 years, the AUD remained well below its long-term average of $ 0.77 and house prices rose to two digits. Then, as commodity prices increased, the AUD also increased. Housing prices have risen with them approaching the GFC.
The AUD hit $ 0.96 in the GFC, then fell by a third in a matter of months. House prices bottomed out, then rose sharply before peaking when the AUD hit parity with the USD.
This extreme drop in the AUD largely explains why house prices in Melbourne maintained their value via the GFC and then rebounded in the years that followed. The story was very different in other parts of the world at that time.
For much of 2011-2013, the AUD was valued above the US dollar and house prices in Melbourne stagnated. There was less demand abroad during these years.
From 2013, the AUD began to fall and house prices began to rise. The graph below clearly illustrates this.
Melbourne is an attractive destination for international students, migrants and investors. Individual buyers can often be characterized as all three at once – an international student obtains permanent residence and purchases property with the support of family members abroad.
Those on the market from 2013 to 2016 then know how intense the auctions were in Melbourne, especially in the suburbs where demand was high from buyers of Asian origin. As a result, price growth was significantly higher in these areas. This graph illustrates this.
The AUD recently hit a 17-year low after falling for two years. House prices have dropped significantly over the same period. It is rare to see AUD and housing prices move in the same direction.
The overseas demand for homes in Melbourne has been relatively moderate in recent years for several reasons. In 2015, the state government of Victoria increased stamp duty for foreign buyers and introduced a property surcharge targeting "absent owners" and a vacant residential property tax.
Around the same time, the Chinese Communist Party intensified its anti-corruption efforts and the flow of money from China to Australia slowed down.
The relationship between the Chinese and Australian governments has been difficult lately, and Melbourne may well see demand from this part of the world decline in the months and years to come.
But, Australia will emerge from this COVID crisis much stronger than most countries, and Melbourne's status as one of the top rated places to live in the world will remain.
If the AUD remains well below its long-term average, foreign investors will see good value in Melbourne property.
Andrew Stone is the director of Property Analytics and Buyer Advocacy, a company specializing in real estate analysis that provides strategic real estate research to real estate agencies in Melbourne.
Main suburbs:
st marys
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chermside
,
lockridge
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vale eagle
,
redcliffe
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