As one of China’s main trading partners, Australia is also affected by the downward trajectory of China’s economy over the past two years. According to the International Monetary Fund, China’s growth slowed down to 6.8 per cent in 2015, with forecasts for 2016 still lower at 6.3 per cent.
Meanwhile, rising wages in Australia combined with low interest rates have contributed to a significant rise in Australian property prices. This is mostly felt in cities like Sydney, where the median house price breached the A$1 million-mark for the first time last year.
Foreign investors—especially the Chinese—have increasingly comprised a larger portion of Australian home buyers. Australia’s trade relationship with China and the rise of housing prices present what many consider a ‘frothy’ housing market.
As a result, Australia is struggling to find new sources of economic growth, with policymakers trying to boost other sectors even though they prove to be challenging. The country’s rising unemployment rate, combined with the slowest pace of wage growth, suggests that the economy is no longer rising in sync with the housing market. Lenders’ tightened restrictions on foreign investments is also being done in an attempt to curb the housing bubble.
However, the impact of new regulations is not limited to the property sector only. Even Australian banks are vulnerable to any correction in the housing market because they account for 89 per cent of market share for housing loans. Investors better take all of these factors into consideration before investing in the Australia’s property market.
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