After several years of robust performance, the Australian housing market is starting to languish, much to the disappointment of foreign buyers and investors who are now fleeing to greener pastures.
In a commentary on News.com.au, industry watcher and economist Jason Murphy said foreign approvals to buy Australian residential property dropped by two-thirds last financial year, from 40,000 to 13,000 in 2016-17.
"That takes billions of dollars out of the market and reverses three years of surging foreign enthusiasm for Aussie homes," Murphy said.
It should be noted, however, that the Foreign Investment Review Board (FIRB) introduced fees on approvals, which discouraged potential investors from applying for one.
However, the board said there are other reasons why foreign investors are starting to abandon the Australian housing market. These include the tighter lending standards and taxes on foreign property buyers.
"The data is from last financial year but it is likely still having an impact now. You get approval to buy a property before the purchase — so drops in approvals last year will cause lower sales this year. In summary, even if half the fall is due to higher fees, there is still definitely a reason for concern," Murphy said.
In addition, two other factors are also affecting the market: Australians’ ability to repay loans and the tougher financial conditions.
Murphy explained that while few Aussies are defaulting on their loans, their ability to repay is not improving, given sluggish wage growth and rising unemployment.
Meanwhile, the current condition of the financial system is also making the market unattractive for property buyers, as it is which is riddled by controversies surrounding the ongoing investigation of the royal banking commission.
"Not only is there a crackdown on investor loans taking the heat out of the market, but banks are facing a reckoning for their behaviour in the boom times," he said.
Murphy said global interest rates are also a factor -- sooner or later, Australian interest rates will follow the footsteps of the US, where mortgage interest rates have been increasing fast.
"It is easy to find reasons to be cautious about Australian property and tough to see too many reasons for enthusiasm. No wonder foreign investors are cooling on Australian property," Murphy concluded