Falling Australian dollar could discourage Asian apartment developers: MacroPlan Dimasi

A continued fall in the Australian dollar could discourage Asian developers from buying up development sites and undertaking new apartment projects, property consultants MacroPlan Dimasi have warned.

The argument is counter-intuitive to the traditional notion that a weaker Australian dollar makes it cheaper for foreign investors to buy Australian real estate.

However, according to Macroplan chief economist Jason Anderson there could be a hiatus in purchases from Asian developers if there is a “gradual deprecation” of the dollar because they will face the prospect of owning an asset that is declining in US dollar value terms.

“This outcome would lead to delays in project commencements and lead to a leg down in apartment building,” writes Anderson in Macroplan’s latest e-newsletter, reports The Australian Financial Review.

However, he also acknowledged that a weak dollar would benefit Asian investors who have bought Australian apartments off-the-plan and are yet to settle their purchases, reducing the risk of defaults.

The Australian dollar peaked at $1.11 against the greenback in July 2011 and remained mainly above parity until the recent fall in early May sparked by the cash rate falling to a 53-year-low of 2.75%.

It fell to below 96 cents this week but is currently trading up at around 97.5 cents ahead of today's cash rate announcement.

Property consultants Charter Keck Cramer estimate that offshore developers will account for around 39% (4,700 apartments) of new apartments being developed in Melbourne’s central City region over the next three years.

This compares with offshore developers accounting for just 8% of new apartments between 2000 and 2012.

Asian developers have been spurred into developing new apartment projects in Australia on the back of surges in Asian students coming to Australia combined with more restrictive lending practices in their home countries and low Australian interest rates.

Recent research by Jones Lang LaSalle suggested the Australian dollar is less of a factor than some believe in encouraging offshore investors to buy Australia’s commercial property.

Jones Lang LaSalle found that funds poured into Australian commercial real estate when the Australian dollar was well above parity against the US dollar in 2012, rather than discourage investors.

This suggests that the opposite could happen if the Australian dollar falls – or perhaps that the Australian currency is less of a factor in commercial real estate as it may be in residential investment.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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