​Increasing foreign interest to shape 2014 property market

by 06 Jan 2014
A rise in interest from both foreign investors and overseas banks is likely to be a key factor influencing the Australian property market in 2014, says Aviate managing director Neil Smoli.

"Of particular interest will be the rumoured entry to Australia of certain major Asian banks, which could be expected to move aggressively into our market and potentially keep the rates offered by the major Australian banks in check,” said Smoli.

Japanese bank Bank of Tokyo-Mitsubishi signalled a cautious entry into the Australian market late last year, making a $500m deal with AMP Bank. A number of other Asian banks are rumoured to be looking at potential deals with Australian lenders.

Smoli also pointed to the growing number of foreign investors as being a key influence through 2014. 

"The influence of foreign investors purchasing residential property in Australia is having an increasingly pronounced impact. The relatively simple path for overseas investors to purchase property in Australia can be expected to come under further scrutiny, particularly given the falling number of first home buyers in the market at the moment," he said.

"It is difficult to see any real respite for first home buyers from an affordability perspective, hence we expect loans to investors to continue to outstrip those to first home buyers over the next 12 months."

The gradual increase in the proportion of loans arranged for investors has risen steadily in recent times. Where investors would typically account for 20%-30% of new mortgages, the aggregation groups Aviate is aligned with now suggest this proportion is just shy of 40% and could potentially rise further. 

In terms of the cash rate, Smoli said it is unlikely the RBA will lift the official cash rate dramatically, at least not in the immediate term, despite a move among mortgage holders to fix rates to take advantage of the lower interest environment.

"A substantial rise in interest rates seems some way off given the current state of the Australian economy, the value of the dollar and the potential for unemployment to rise slightly over the course of 2014," he said.