Impact of Brexit on the Australian Property Market

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Impact of Brexit on the Australian Property Market

June 20, 2016

 The Australian property market is no longer simply influenced by local factors. The Australian federal election is not really expected to play a major role in the housing market in the country, at least not as much as the Brexit referendum to be called on June 23 in Britain, just a few days from now.

Indeed, this Thursday’s Brexit referendum is likely to have repercussions well beyond Britain. It is likely to have a significant impact on property prices in Australia.

The reason for this is that local factors or local politics no longer have as much of an influence on the national economy or the housing market in the country. Australia is a country that has been internationalized to a great extent and is very much influenced by global events.

For example the emergence of China is arguably the single biggest factor leading to the phenomenal increase in property prices in Sydney and Melbourne over the last decade and a half.  Chinese nationals are the biggest buyers of Australian properties and their interest has certainly led to a Sydney and Melbourne becoming two of the most expensive cities in the world.

 So, the underperformance of the Sydney and Melbourne housing markets in 2015 can be explained by the fact that the Chinese stock market crash of that year, which saw trillions of dollars of investors money getting wiped out in China.

The fall in oil prices has been another factor that has acted as a dampener on real estate in Australia. But it is Brexit that is expected to have the most significant impact of all. At the time of this writing, it seems very likely that the Leave campaign is on top. Even bookies, who had so far backed Remain are now leaning towards Leave.

 So the global economy is set for a real shock if Leave campaign was to win.  Indeed, nobody is likely to be unaffected, stock markets around the world are bracing for such a result and what it would bring.

The resulting uncertainly and confusion would be a bit too much to bear for most investors. Britain leaving the EU would certainly kill the confidence in the global economy in the short-term, and possibly send Britain immediately into a prolonged recession.

Indeed, the money markets around the world think that a global economic recession is a real prospect, one that may lead to the sterling taking a real battering. The euro is not likely to remain unaffected either.

What this would mean is that investors would switch their funds to the safety of the US dollar, and could take away money from minor currencies such as the Australian dollar. So, Australian banks would end up paying more for the capital borrowed overseas. This could mean a jump in mortgage interest rates, which could have a contagion effect on the entire economy, including on the property market in the country.

 Indeed, 2016 could prove to be an important year for the global economy, just as 2008 was. Events such as Britain leaving the EU, a further fall in oil prices and the U.S. Presidential elections to be held in November could have a huge impact on the price of your apartment or house in Australia.

Interest rates in Australia have been stuck at very low levels for a number of years. There is a possibility that they could go even lower. However, this may not hold true and Australia is unlikely to remain unaffected if the global economy starts feeling the blues.  The coming week will prove to be an important period for real estate investors in Australia.  All of this information should help buyers and sellers of property in Australia make a more informed choice.