Will the Low Australian Dollar Drive House Prices Up Even Further?

A low Aussie dollar will lure more overseas investors to Australia

Rising unemployment could lead to another interest rate cut and lower the value of the Australian dollar further, making local properties even more attractive to foreign investors.

The current Australian dollar value has already hit a 3.5 year low against the US dollar, with the strengthening of the US economy and the gloomy outlook on China’s growth pace cited as the main contributors to the decline.

Low Dollar Makes Properties More Attractive to Overseas Investors

Whilst a low Australian dollar will benefit manufacturing, tourism and retail industries by making businesses more competitive, it can also lure more overseas investors into the local housing market, increasing property demand and therefore drive prices even higher.

Foreign investors, particularly Chinese buyers, are already seen to have pushed house prices up beyond the reach of first time buyers. 

Price and Lifestyle Top Requirements for Chinese Investors

Although Australia is popular with Chinese property investors, Juwai.com’s research suggests buyer interest has shifted to other and newer locations. 

In fact, New Zealand experienced the fastest growing Chinese property buyer interest in 2013, followed by Italy, Thailand, France and Portugal.

“A [low Aussie dollar] can lure more overseas investors into the local housing market, increasing property demand and therefore drive prices even higher.”

Interestingly, according to Andrew Taylor of Juwai.com, a quarter to half of all [Chinese] buyers starts hunting for property without any particular country in mind.

“The country where the property is located can be less important. What’s happening is that more high-net-worth buyers are beginning to search by property price and lifestyle,” Mr Taylor says.

Australia Ranks Only Fourth as Emigration Destination

Although Australia has traditionally been a popular property investment destination for Chinese buyers looking for great lifestyle , the recent Chinese Luxury Consumer Survey revealed that Australia ranks only fourth as an emigration destination, behind the United States, the United Kingdom and Canada. 

One possible explanation is that high-net-worth Chinese parents prefer the UK or the US for their education opportunities.

However, from a price perspective, a low dollar may provide Australia an edge over other countries in 2014. 

Low Dollar Also Makes Local Properties More Feasible for Australian Investors

For Australian investors, overseas properties will require higher purchasing and servicing costs if the exchange rate remains low.

Even if the effects of currency devaluation can be managed through hedging tools such as forward exchange contracts or options, investing in local rather than overseas property would seem both cheaper and easier.

“From a price perspective, a low dollar may provide Australia an edge over other countries in 2014.”

This can further add to the pool of potential buyers in the already crowded housing market.

Outlook for the Australian Dollar Downbeat with Further Rate Cut Possible

The outlook on the Australian dollar is bearish, assuming recoveries continue in the UK, Europe and the US. 

Locally, if unemployment levels exceed those forecast, the central bank may need to lower the interest rate again to stimulate the economy.  The implication of such a move would be an even lower dollar.