Australian Government To Tighten Rules On Foreign Investment In Real Estate

The record pace of housing price growth is contributing to mounting concerns of a bubble in Australian real estate, along with the inevitability of an interest rate hike …

The record pace of housing price growth is contributing to mounting concerns of a bubble in Australian real estate, along with the inevitability of an interest rate hike by the Reserve Bank. Soaring property prices have spurred new restrictions on foreign purchases, after earlier government incentives for first-time buyers helped propel prices 20% in the past year. See the following article from Property Wire for more on this.

Property prices in Australia have surged 20% in the last 12 months raising further fears about a real estate bubble and making it almost certain that interest rates will rise.

The annual rise in house prices was the fastest ever recorded by the Australian Bureau of Statistics data series which began in 2002. A rise of 4.8% in the fourth quarter of 2009 was the second biggest quarterly increase.

House prices rose 4.8% in the first quarter of 2010 from the previous three months when they gained 5.2%, according to the government figures. Property prices surged in the major capital cities in the first three months of 2010 and much of the turnover was at the top end of the market. Melbourne saw the steepest quarterly rise at 6.7% followed by 5.4% increase in Canberra and in Sydney there was an increase of 5.3%.

Demand for homes surged in 2009 after the government tripled its late 2008 payments to first time buyers of new homes to A$21,000 and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January to their original A$7,000 but that has not hampered the price growth in the sector.

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The Australian government last month announced drastic measures to tighten rules on foreign investment in real estate and introduced penalties to enforce the changes to ensure pressure isn’t placed on housing availability for citizens.

Temporary residents, including students, will require approval from the Foreign Investment Review Board to buy property and will have to sell when leaving the country.

The rising property prices make it almost certain that interest rates will be increased tomorrow.  Rob Henderson, head of Australian economics at National Australia Bank said that the Reserve Bank of Australia now needed to get more aggressive and acknowledge the need for a restrictive policy stance.

‘This is a shocker. The RBA needs to up their rhetoric and acknowledge that the economy is now growing at above average rates, requiring above average interest rates,’ Henderson said.

‘A 20% increase in house prices is very difficult to ignore. This latest piece of news may well be the log that broke the camel’s back. Until now, I had thought that the RBA would take a month off tomorrow. It may no longer be able to afford that luxury,’ said Chris Caton, chief economist at BT.

The RBA has raised interest rates five times since October 2009, increasing its cash rate target to 4.25% from 3%. House price increases have lately been key to the RBA’s rationale for rapidly removing loose policy settings.

This article has been republished from Property Wire. You can also view this article at
Property Wire, an international real estate news site.

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