Declaration of interest first, I don't own anything in Australia yet, but I am looking to buy, for owner-occupying, not for investment.
From what I read, a significant part of the realty frenzy has been fueled by overseas investors from Asia, uh, me being one of them. I have seen how people from where I grew up, Hong Kong, pushed up Vancouver BC's realty to an unsustainable level before it crashed 50%. I was also lucky enough to stay out of the massive crash in HK realty market which lost 70% of its value in 6 years.
Some observations from the persepctive of an overseas investor. First, Australian property has gone up way more than what is denominated in AUD. We need to take into consideration the AUD appreciation as well. But you may say, rental is also collected in AUD, right? Well, not that simple. An investor who is originally looking at buying a 400K AUD home now has to shell out 30% more due to currency appreciation plus the gain of housing value, which means, he may be forced to look at a less desirable neighborhood for the same budget, or dispose of other assets to fund this investment. That creates a higher entry barrier for overseas investors.
Second, most overseas investors are putting money in units, well, because Asians are more familiar with units, despite the fact that it is a terrible investment vehicle. I was particularly interested in inner city Brisbane. A couple of months ago I was walking down the streets in CBD, stunned at how many units that were being put up. Right now, I see quite a few of the finished 2-bedroom new units being advertised for AUD350-400 a week. How many people in Brisbane make that kind of paycheck to fill up thousands of new units in the pipeline? If I were a Brisbane local and I could afford a 350-a-week rent, I'd be stupid not to plunge that money into my own mortgage, especially with such a low interest rate and a generous first-time buyer incentive. The scene in Brisbane CBD also reminds me of the days just before the crash in Vancouver downtown. Some realty agents told me that the Asian students at UQ and QUT can suck up the supply fast, well, the last time I checked, I didn't see either university increasing their slots by the magnitude of thousands.
Third, it's the yield stupid! An overseas investor doesn't fall in love with the city, he falls in love with the yield. With the current gross rental yield hovering around 4%, I'd say leaving my money with AUD government bond is a safer and better bet (gross 4.5%). Capital gains? How can the value of a home keep growing while the yield keeps dropping? I am talking about the yield situation in Brisbane since I have long ignored Sydney, which I predict will crash quite spectacularly in a matter of months.
So, I guess my conclusion is, if what you are looking at to invest attracts a strong mix of overseas investors, or speculators, keep away. Keep away from units/apartments. Keep away from CBD. I personally don't think Brisbane is going to crash, so to speak, but I won't be suprised to see a 15-20% general downward adjustment in price as compared to the peak, which is perhaps now, perahps in another 6 months.
