What do overseas property investors see that Australian property investors don?t?

August 12th, 2010

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Foreign investors are getting spooked by the ?perky? Australian property market, according to this article:

Overseas bank investors are becoming increasingly jittery about Australia’s housing market. Bank analysts are fielding calls from overseas-fund managers about the sustainability of a surge in prices over the past year.

So while Australian property investors celebrate increasing prices, overseas investors are getting wary of an overheated market.

In Australia we have been inundated with theories regarding restricted supply, immigration, lack of land release, low interest rates and any number of other ?fundamentals? to explain the continued rise, and possible sustainability of Australia?s property market.

But are we exposed more than we realise?

According to this article, Australian banks are increasingly exposed to the cost of foreign sourced credit:

Australian banks now finance much of their lending from offshore because our national thirst for credit outstrips our collective ability to fund it.

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The nightmare scenario goes something like this: International investors refuse to extend our banks credit at a reasonable price. This forces the banks to pass on additional costs to their customers and, in some cases, refuse credit. These tight credit conditions could squeeze property developers and highly-geared property investors alike. Many developers would be forced to offload housing stock quickly- by reducing sale prices – to raise cash to repay their loans as they fell due and/or cover the increasing costs of their debt.

Overseas property investors will be acutely aware of the value of the Australian dollar, as their investment will be bought and sold at a relative exchange rate. They will need to understand the current and future Australian dollar trends and risks.

But local investors are not encouraged to look into global economics. In fact, the level of financial education in Australia (and perhaps a large portion of the world) is unfortunately weak. Instead of being a ?smart country?, perhaps we are only the ?lucky country? after all. Will an external shock end our run of luck?

So, what do you think will happen to the Australian property market? Vote below and tell us what you think!

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