What impact does exchange rate movements have on property prices?
Exchange rate movements mainly affect demand for Australian real estate from foreign investors and expatriates.
Australia is seen as a preferred destination for overseas property investors. The opportunity to own a freehold title as against a leasehold title, a relatively fair and transparent business environment and a strong economy are some of the factors that make Australian real estate inviting.
Quite simply if the Australian dollar is high this increases the cost of property for foreign investors. A low Australian dollar makes property more inviting for overseas investors.
Increases and decreases in the Australian dollar can have indirect effects on demand for housing. For example a fall in the Australian dollar will increase tourism to Australia which will result in lower vacancy rates for holiday and rental properties.
In recent times Australia has experienced a substantial increase in foreign investment particularly from Asia and especially China. Many Asian investors have their
currency tied to the US dollar so a strong US dollar results in greater buying power.
Expatriate Australians are able to secure loans that are not in the same currency as the secured property. This strategy is used to take advantage of lower interest rates. However this strategy can backfire if the exchange rate falls. The financial institution can then demand the borrower pay the funds required to compensate for the loss as a consequence of the unfavourable exchange rate movement.
In summary, a low Australian dollar does stimulate demand for Australian property, but factors such as employment growth and interest rates play a far greater role in influencing local property prices.