The RBA made eight consecutive rate rises last year and a further three increases this year. Predictably the property market began to fall from its 2021 peak losing around 8% nationally from top to bottom. However, the market has now bottomed, with Sydney’s value rising by 3.5% from its 7th February low. We are witnessing this rather unusual situation, given that rebounds generally occur after interest rate cuts. One possible explanation is that foreign buyers, particularly those hailing from China, maybe the primary driving force behind this market resurgence.
The graph above depicts China’s household savings. We can see that they added close to $US2.6 trillion to their bank balances during the pandemic lockdown, which they only came out of late last year. This increase in savings and a decrease in confidence among Chinese residents in their economy and housing market has prompted them to enter the Sydney market.
According to the latest NAB Residential Property Survey, foreign buyers made their presence felt, with their overall share of sales rising to 7.9% in Q1 2023 (5.2% in Q4 2022). Although this is still below the long-term average (9.0%), it is a good sign of an increase compared to the previous quarter. In NSW, the market share jumped sharply to 16.2% from only 6.7% in Q4 2022 – the highest level in eight years.
So, what does this mean for Sydney property?
With the influx of foreign buyers, there is an increase in demand, which leads to a surge in property prices. A recent map of the population inflows/outflows of high-net-worth individuals from different countries shows that approximately 80,000 millionaires have moved to Australia over the past two decades. The bulk of the migrants finds their way to Sydney and Melbourne, driving up property prices, although in recent years, we have seen an uptick of migrants moving to other Australian cities such as Brisbane and Perth. Sydney and Perth are leading the housing market out of this correction, and there are early signs of an improvement in the other markets as well.
We will start to see a challenge for local buyers to purchase homes. Investors seeking property in Sydney will face an uphill battle due to intense competition within the market. Generally, foreign investors invest in high-end properties, which leads to a surge in luxury property prices. This creates a flow-on effect with buyers who have been priced out of the market being pushed into mid-tier markets, creating a flow-on effect throughout the entire market. The high-demand market will create a challenging environment for buyers. Most of the benefits will accrue to investors already holding properties in this market.