Affordable Australia: Impact of AUD on unit pricesApril 29, 2016 / By
The size of the Brisbane apartment market has increased over the past few years as Brisbane matures as a city and a move towards apartment living is evident. The amount of supply expected to come to market over the next few years is high. Despite this overseas interest in Brisbane apartments is increasing.
Overseas investors are looking for good returns and wealth preservation may also be another driver. The average price of an apartment market in Brisbane at the end of 2015 was $395,000; a 1.1% increase on the previous year. However looking over the longer term, apartment prices have grown by 42.5% over the last ten‑years equivalent to 3.6% p.a. Sydney by comparison has grown by 5.7% p.a. (CoreLogic RPData).
In 4Q15, JLL surveyed a sample of residential developments in Brisbane’s Inner ring to see where buyers are located. Interstate buyers accounted for 47%, overseas buyers 31% and local buyers 23%. Indications so far this year suggest that overseas buyer interest in Brisbane is increasing. One of the reasons for this may be the impact of currency movements along with the relative affordability of Brisbane.
Over the past three years an average unit in Brisbane in AUD has increased by 4.1% whereas in Chinese Yuan the value has actually fallen by 24%. This shows that for foreign investors unit prices have become more affordable not less. In Sydney this trend is even more pronounced. Over the same period an average Sydney unit has increased by 31% in local currency compared to a decline of 4% in Chinese Yuan.
Figure 1: Unit value index (Dec 2005 – Dec 2015)
The Australian dollar has appreciated by 4.4% since the start of the year (to 28th April) against the Chinese Yuan and against the US Dollar. However, this is not enough to significantly impact on affordability for Chinese buyers. The RBA, at their April meeting, chose to keep the cash rate at 2.0%, however, the appreciation of the AUD was highlighted as a concern. There remains a monetary policy easing bias and if the currency were to appreciate much further then there is potential for the RBA to cut rates, particularly with the current low inflation environment. Given this, it is unlikely that the Australian dollar will rise to previous highs and most forecasters anticipate the AUD trading around the levels seen so far this year; between 70 and 76 cents USD.
Australia remains an attractive destination for overseas, particularly Chinese, investment. It is a mature transparent economy with a good track record of robust economic growth. The impact of short term currency fluctuations are unlikely to deter investors. Looking over the longer term history, currency market movements have actually made the Australian residential markets more affordable to Chinese buyers.
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