Will Australian bush fires choke recovery in its property market?

Cheryl Arcibal

Investors are likely to reconsider the long-term prospects of real estate in major Australian cities such as Sydney and Melbourne, following bush fires that have destroyed 2,500 homes and killed 29 people, and are still burning, according to an analyst.

“The bush fires are … becoming more of a real concern for investors, and it’s become a more urgent need to reassess the impact or potential impact of climate change. And Australia is a prime example of that,” said Jonathan Hsu, head of property research for Asia at London-based M&G Real Estate. “If the bush fires become a regular occurrence, how should investors look at Australia?”

According to property consultancy Savills Australia, the fires are forecast to have a 0.2 per cent to 0.5 per cent negative impact on the country’s first-half economic output. They are also threatening to hobble a recovery in interest and demand for Australian property, both residential and commercial, following the re-election in May last year of Liberal/National Coalition, which meant a retention of the investor-friendly policy on capital gains tax and negative gearing, and the cut in interest rates by the Reserve Bank of Australia to a historic low.

“The 2019 Australian summer has seen record-high temperatures and bush fires across extensive parts of Australia. While these have not directly impacted the property prices of major inner cities of Sydney and Melbourne, which attract higher interest from overseas buyers, some regional areas bordering these cities have also suffered several years of drought and seen the worst fire season on record,” said Kenneth Kent, general manager at REA Group Hong Kong, a global online property advertising company.

In the second half of 2019, the Australian property market was showing signs of recovery, with both inquiries and prices rising.

The prices of luxury homes in Sydney rose by more than 3 per cent in a year ending December, while Melbourne’s grew by about 2 per cent in the same period, according to REA Group. Property searches from Hong Kong on its Australian property portal also jumped by half starting in June.

“The most expensive property ever sold in Australia was a penthouse in the new Tower One development in the Bangaroo suburb of Sydney, reportedly to a Hong Kong buyer for over A$140 million [US$95.7 million],” said Kent. “Hong Kong buyers continue to be interested at all price points, but they have proven to be very active in the luxury segment.”

And with Hong Kong mired in its worst political crisis in decades, Hongkongers have more reasons to look at Australian property as a safe investment, according to Savills Australia, despite lower yields owing to the current low interest rate climate.

“Yield doesn’t seem to be as much of a priority as making sure the capital investment is a safe one, especially given the political climate in Hong Kong,” said Chris Orr, director, residential at Savills Australia. The office, industrial and retail segments are also attracting investment, particularly high-value assets. Savills also said rebuilding devastated areas will have a positive impact on the property market.

“It is too soon to accurately assess, but as the bush fires were a result of a combination of extraordinary events and did not impact major cities, I do not believe they will have a longer term impact,” said Sydney-based Ken Jacobs, who is affiliated with Christie’s International Real Estate and is the managing director of his own property agency.

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