Australian Property Market Witnesses Booming Suburb Prices and Record Foreign Bank Lending

A recent boom in the Australian property market has seen select suburbs experiencing surges in property prices, while the office real estate sector has observed a record increase in foreign bank lending. Despite overall growth in property prices across the country, this upsurge has been more pronounced in certain areas and sectors than others, painting a multifaceted picture of the Australian property market.

David Taylor in his article, “Property prices continue to rise, several suburbs are experiencing a boom”, mentions the soaring property values across various suburbs. According to data from PropTrack, certain suburbs such as Hurlstone Park, Fairlight, and Smithfield Plains have seen a significant rise in their Automated Valuation Model (AVM) growth over the past six months.

This upward trend in property prices is largely attributed to two factors: a rebound in Sydney driven by a strong economy and labour market, and an ongoing demand for more affordable capitals, as explained by PropTrack’s Senior Economist, Paul Ryan.

However, this surge in property prices is causing a rise in rental costs, with the national rental market remaining “extremely tight,” as pointed out by Cameron Kusher, PropTrack director of economic research1. Despite a slight increase in rental vacancies, the demand for rentals remains robust, leading to an escalation in rental costs.

Reuters’ recent report, “Foreign bank lending to Australian offices hits record as local banks retreat”, sheds light on another aspect of the Australian property market, revealing a record high in foreign bank lending to Australian office real estate.

Foreign banks’ lending rose by A$1.2 billion to A$35.5 billion in the March quarter, marking the highest level since 2004. This data portrays an increasing risk appetite among foreign banks in the Australian property market, offering a fresh source of investment into a sector that has recently witnessed a retreat by local banks.

Jonathan Kearns, Chief Economist at investment management firm Challenger, and a former head of financial stability at the Reserve Bank of Australia, asserts that this shift allows foreign banks to diversify into a market with a promising record of economic growth and credit performance.

However, amidst this flurry of foreign bank lending and property price boom, some experts are calling for major reform. Economist Rae Dufty-Jones from RPS Group warns that the ongoing resilience of the Australian property market against global crises suggests structural weaknesses, urging for innovative public policies to prevent economic inequalities.

In summary, the Australian property market is currently on a roller coaster ride, with a boom in certain suburbs and foreign bank lending, and a retreat by local banks. Despite this mixed outlook, experts are urging for caution and for major reforms to mitigate potential economic risks.

References:

Taylor, David. “Property prices continue to rise, several suburbs are experiencing a boom” https://www.abc.net.au/news/2023-07-28/several-suburbs-in-australia-are-experiencing-a-market-boom/102660784 

Reuters. “Foreign bank lending to Australian offices hits record as local banks retreat” https://www.nst.com.my/property/2023/07/935772/foreign-bank-lending-australian-offices-hits-record-local-banks-retreat