High-end Australian property is a hit with Asian investors from jurisdictions such as Singapore due to a range of forces at work and set to remain so, says Knight Frank.

High-end Australian property is a hit with Asian investors from jurisdictions such as Singapore due to a range of forces at work and set to remain so, says Knight Frank.

The property firm launched an Australian development to Singapore investors at the end of October, called Queens Domain in the St Kilda Road area of Melbourne. (That development is due to be completed in 2017.) This is the kind of development – adding new residential capacity – that the Australian regulatory regime permits for foreign investors. And while there are risks to consider as with all investments, the country has a great deal of appeal for outside clients, the firm told this publication recently.

“Low Australian [interest] rates still make it [the market] affordable for Singaporeans; it is very cheap to be borrowing,” Sarah Harding, director for Asia-Pacific international project marketing at Knight Frank Australia, said in a call.

Australia has a strong economy – 22 consecutive quarters of growth, strong salaries and a growing and young population rate of 1.7 per cent, ahead of a global average growth rate of 1.2 per cent. Melbourne and Sydney are popular cities, with Melbourne set to see its population overtake that of Sydney by 2014 with a growth of 1.8 per cent, she said. Knight Frank also likes to state that Melbourne has been ranked the World’s Most Liveable City for the fourth year in a row by the Economist Intelligence Unit.

It is worth noting that currency rate fluctuations can raise headaches but also cause some opportunities to open up. Knight Frank says that the strong performance of the Australian dollar in recent years had made property in the country unattractively costly for foreigners, but a more recent drop in the Aussie currency has made property more appealing.

Meanwhile, data, as of August this year, shows that for apartments, for example, the country as a whole logged average capital growth of 8.6 per cent, with Sydney leading the way at 14.3 per cent and Melbourne at 5.8 per cent, with Perth in the west of the nation the laggard, at just 1.9 per cent. Over the latest quarter, total returns on Australian property were a mild 0.4 per cent, with Sydney at the top, at 1.6 per cent.

Harding’s colleague, Richard Drummond, director for project marketing, residential Melbourne, said most wealthy Asians prefer to invest directly into property rather than use the route of a fund. So far, he said, his firm has encountered a few, but not many, examples of family offices buying Australian real estate.

There have been some warning signs, however. A report by the BBC at the end of October had the headline “High Australian real estate prices lead to bubble fears”; another headline from a news service said “Is there a property bubble that is about to burst in Australia?” Australia has had its share of sharp moves in brick-and-mortar prices before – a hard landing in the Chinese economy, for example, could hit Australia’s important commodities exporters and this could have a knock-on impact on the economy. However, it is worth noting with that point in mind that Australia this week, at the G20 gathering of nations in the country, inked a major free trade deal with China – presumably good news for both.

A report by Demographia, an organisation carrying research on housing affordability, stated in its 2014 survey that Australia has some of the least affordable housing in the world – it had 25 severely unaffordable markets, with the US having 23 such markets.

Its report for 2014 made for uncomfortable reading: “Each of the five major markets of Australia continues to be severely unaffordable. Moreover, each of Australia's major markets has been severely unaffordable for all 10 years of the Survey (a distinction shared only with New Zealand, with its single major market, Auckland).”

Needless to say, any prediction about property markets in general should carry a health warning, both against excessive optimism and gloom. The underlying trends for Australia appear positive and given the desire by high net worth and ultra HNW individuals to want a bit more space for their money than is available in the prime residential areas of London, New York or Singapore, the roomier territory of Australia appears likely to be on the radar for some time to come.