Declining Aussie dollar unlikely to impact property market

A weakening Aussie dollar may be good news for the broader economy, but it’s unlikely to boost foreign investment in the real estate market, property experts have said.

Stricter lending standards imposed by the Australian Prudential Regulation Authority have led to a prolonged slump in Australian house prices, with recent data from property consultancy firm CoreLogic revealing national prices in September to be down 2.7% from their peak 12 months ago.

And while a weakened Australian dollar will further boost housing affordability among overseas investors, property experts say it’s unlikely to lead to a significant uptick in foreign investment in the sector.

That’s largely because most foreign investment into the country’s real estate sector comes from China, and tight capital controls implemented a couple of years ago by Chinese policymakers mean that it’s very difficult for Chinese investors to get money out of the country.

Together with the Foreign Investment Review Board’s introduction of application fees in 2015 and tougher restrictions on bank financing to overseas investors, the tight capital controls are likely to overshadow the increased affordability of Australian property precipitated by the Aussie dollar’s recent tumble, said Paul Dales, chief Australian economist at Capital Economics.

“Although some of those capital controls have been relaxed, there’s still quite a disincentive to purchase property,” he said. “These things always go some way towards putting in a floor under prices at some point, but I don’t think they’ll prevent house prices from falling over the next year or two.”

REA’s chief economist Nerida Conisbee also said that the local currency’s decline was unlikely to have a major impact on the industry, although she noted it could lead to a slight increase in interest from parents of overseas students.

“Education is a big driver of Asian buyers in Australia. They want somewhere for their children to live. A lower AUD will make education cheaper for them, which is likely to encourage more of them to study in Australia. And that, in turn, will lead to more buyers,” said Conisbee.

“The lower AUD will help but it’s unlikely to drive a large pickup in buyer activity.”

Driven largely by the widening gap between the interest rates set by the Reserve Bank of Australia (RBA) and the US Federal Reserve, the Aussie dollar’s latest tumble saw it drop to a two-and-a-half year low.

At 4:45am, the currency was trading at US70.72¢, down from US81¢ in late January.

Like many of his peers in the business community, Dales believes the dollar’s decline will provide the economy with a welcome shot in the arm.

“When the tide is turning against the Australian economy, the Australian dollar tends to weaken, and that gives [the economy] a bit of kick,” said Dales.

“It will certainly help the economy, by boosting exports. But I just don’t think there will be much of a boost to the property market.”