Low interest rates as well as a stampede of cash-flush investors from Asia have pushed some areas of Sydney's real estate market into a state of near frenzy.
Raine & Horne agent Mario Mazzeo told Fairfax that the lower end of the market, now pegged at between $600,000 and $1 million, is “going absolutely crazy” on the back of several factors, including an inrush of aggressive overseas buyers – particularly from China, and local investors making haste to take advantage of low interest rates.
“It’s a combination of investors trying to buy something for self-managed super funds, overseas buyers and young buyers trying to get in while interest rates are still low,” Mazzeo said.
Data compiled by Australian Property Markets indicates that clearance rate for 459 of 693 auctions scheduled in Sydney over the final weekend of October was was 83.2 per cent.
Intense bidding amongst prospective buyers vying for coveted locations pushed the prices for some modest inner-city dwellings to over a million dollars. Social media reveals that one two bedroom terrace in Surry Hills’ Rainford Street went for $1,094,000 to a 23-year old university student- more than a hundred thousand dollars above the reserve.
While much of the increased demand has been spurred by low interest rates, another key factor in the price upsurge is the emergence of an affluent upper middle class in China, many of whom are now either migrating or investing abroad.
Australia is considered a highly desirable destination for both residence and investment due to its first world economy, geographic proximity to China, and status as an Anglosphere nation.
China’s upper middle class is now estimated to be in excess of 100 million – around fives times greater than Australia’s total population. This newly emerged demographic group faces constrained investment options back home, with bank deposits providing negative real interest rates, the domestic stock market considered by many experts to be rigged, and local authorities imposing heavy caps on property investment in order to deal with China’s own burgeoning real estate bubble.
Figures from the Foreign Investment Review Board indicate that China is currently Australia’s third largest overseas investor, with more than $16 billion flowing from the Middle Kingdom a year, and the country set to rapidly overtake Britain as Australia’s second largest investor behind the US.