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Sydney. After more than a decade of seemingly endless growth, Australia’s property market is on a downward slide that is expected to be steady and protracted. For now, though, the downturn is cushioned by buyers from Asian countries, who continue to see Australia as a safe haven for property investment.

In the past year, average home prices across the country have dropped 2 per cent, with prices falling in every city except Sydney.
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The drop is largely due to an influx of new buildings and a scaling back of incentives for first-time home buyers. Rising interest rates and growing unemployment have also made buyers wary.

Adding to the uncertainty, the central bank has scaled back its economic growth forecast for this year from 3.25 per cent to 2 per cent.

‘There is property strife,’ said Mr Louis Christopher, managing director of Sydney-based property advisers SQM Research. ‘The market is falling.’

The hardest hit have been the two cities at the centre of the mining boom, Perth and Brisbane, which had experienced double-digit growth for almost a decade until the 2008 financial crisis.

In Perth, house prices have fallen for 15 consecutive months, and are now back to 2007 levels. The slump, blamed on an overheated market during the peak of the first mining boom between 2004 and 2006, is the worst in 30 years.

But the strong Australian dollar is helping to cushion the fall for some foreign owners. Consultant Lim Jee Huat, 49, a Singaporean who owns a house in Perth, said: ‘The strong Australian dollar will help to offset the drop in property prices.’

He bought the property as a long-term investment for about A$320,000 (S$410,000) in 2005, when the Australian dollar was almost on a par with the Singapore dollar. The house now would fetch around A$300,000.

Singaporean businessman Ronald Sim, 42, paid around A$350,000 in 2008 for his house in Melbourne, when the Australian dollar was almost on a par with the US dollar. He reckoned the property is now worth around A$330,000.

‘I am not too worried that prices are falling as I can still get quite decent rent out of it,’ he said.

The country’s biggest and most expensive city, Sydney, is the only state capital not to experience any price declines, mainly because of a shortage of new dwellings.

Sydney prices peaked in 2004, and have remained flat. In the meantime, rentals have surged as the city has had its lowest levels of construction in 50 years.

According to the RP Data-Rismark property research index, median home prices across the country dropped every month in the first six months of the year. Still, prices generally remain at more than double their 1997 values.

That was the year when big drops in interest rates kick-started a decade of soaring prices and - some say - created a bubble.

The boom continued for almost a decade, fuelled by the roaring mining sector and rising incomes, as well as population growth.

According to a report by The Economist magazine earlier this year, Australian home prices are now the most overvalued in the world. Based on a comparison of rental returns to home prices, the magazine said, Australian properties were overvalued by 56.4 per cent, followed by Hong Kong at 53.7 per cent.

Mr Steve Keen, an economist at the University of Western Sydney, reckons the housing bubble began forming in 1997, when Australians took on increasing levels of debt. His research shows that the average household’s mortgage debt has risen from less than 30 per cent of disposable income in 1991 to more than 130 per cent.

But as long as demand from China continues to fuel exports of natural resources, Australia is likely to be spared a US-style housing market collapse.

‘The one saving grace we have is China,’ Mr Keen wrote on the Property Observer website. ‘But as recent economic data has indicated, even China may not be enough to stop unemployment rising in Australia, now that Australia’s debt-driven love affair with house prices is on the chopping block.’

Despite the downturn, foreign investors from China, Japan, India, Singapore and Malaysia are still expected to flock to Australia as it is seen as more stable than other parts of the world.

According to the Foreign Investment Review Board, foreign buyers have spent about A$20 billion a year on property since 2004. Last year, the board approved 4,323 foreign investments in Australian property, or about 1 per cent of total sales.

Mirvac Group, a large property developer, said it was specifically targeting overseas investors. About 8 per cent of sales in its new Era residential complex in Sydney’s north shore were to foreigners.

The focus on wooing foreign buyers reflects growing concern about domestic demand, now that state and federal governments have wound back incentives for first-time home buyers introduced during the global financial crisis.

According to the Western Australia-based bank, BankWest, the number of these home buyers fell 35 per cent last year to 90,210 - the lowest level in seven years.

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055.