Foreign buying – strong foreign buying assisted in pushing up house prices as investors sought to shift funds out of their home country in order to diversify their wealth, invest for capital growth, and/or secure homes for their immigrating families. Buying was concentrated in Chinese buyers, who sought to move their wealth outside of China as the government continues to clamp down on outflows.
Low returns and volatility in other asset classes – increased market volatility and concerns regarding the future returns on cash, bonds, and equities, saw both local and foreign investors seek out perceived safety in bricks and mortar.
High savings rates and low consumer spending – relatively high savings rates, which remained high following the global financial crisis, and low consumer spending saw home owners and investors build rather large cash buffers and significantly increase the size of their mortgage offset accounts which led to increase borrowings.
Housing supply / demand – following the 2000 Sydney Olympic Games, there was a fairly significant underbuild in new housing, resulting in undersupply of housing given solid population growth and the slow release of land from the state government. Strong levels of population growth are expected to continue for many years.
Low borrowing rates and easier bank lending standards – the global financial crisis and slowdown in economic growth since saw the Reserve Bank of Australia lower the cash rate to all-time lows. This resulted in banks lowering their lending rates on new loans to sub 4% in some instances. Banks also significantly increased the number of loans to property investors, provided funding to overseas investors, and increased the number interest only loans in order to increase their returns.
Price momentum – as prices began to rise, investors fear of missing out led them to continue to make purchases. In addition, as prices rose, investors were able to take out further loans given greater borrowing capacity.
Tax environment – the tax environment for property investing has always been favourable (negative gearing, capital gains tax concession), and no doubt this helped fuel property prices in a boom. Robust employment – lower unemployment data than expected and reasonably solid job gains meant investors were more confident in taking on greater levels of debt.