An Economic Overview of the Australian Property Market

This report provides an economic analysis of the Australian property market, exploring its industry background, market structure, and associated issues. It examines the impact of these issues on the industry and the broader Australian economy, including factors such as affordability, immigration, foreign investment, negative gearing, interest rates, and supply. The report also analyzes government policies and their interventions in the market. The analysis covers market trends, including price fluctuations in major cities like Sydney and Melbourne, and the effects of these trends on consumer spending and financial institutions. The report also discusses the supply and demand dynamics within the real estate sector, and the influence of economic growth on the housing market.

Economics for Business

Table of Contents
INTRODUCTION...........................................................................................................................1
Industry Background...................................................................................................................1
Market Structure..........................................................................................................................3
The Industry's associated issue....................................................................................................4
Impact of the issue on the industry and on Australia Economy..................................................6
Government Policy......................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business economics is the combination of all the economic theories with an aim of
facilitating the decision-making and also forward the planning by a management. Thus, it present
report aim is to raise the research, analytical skills as well as economic knowledge. The study is
based upon the property market of Australia and describe the industry background, market
structure. Further, report will describe different issues related to industry and its impact upon the
industry as well as economy of Australia. Lastly, it will present how government intervene into
market using policy.
Industry Background
Property Market comes under the Real Estate Market and in Australia, the property
market consist of trade of land and different permanent fixtures which are located in Australia. It
is analysed from the statistics that the average Australian Property price grew approx 0.5% per
year from 1890 to 1990 after the inflation rate. While on the other side, it is realized that up to
2017, the Australian Property market is increases at faster rate. In addition to this, it is also
observed that there is a drastic change in the residential housing market because the property is
ascending in some major cities such as Sydney, Perth and Hobart. Such that the median house
price is Sydney is peaked around $770000 in 2016 (Australian Housing Market, 2018). But on
the other side, due to stricter credit policy and falling interest from the foreign investors in the
residential property, the prices of the houses is also felling in some major cities. As per the
statistics, when compared with the rise prices in 2017, it is analysed that the housing prices are
fell up to 11.1% in Sydney and 7.2% in Melbourne in 2018 (Moorhead and Armitage, 2019).
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In addition to this, Over the past years, the economic drivers of the real estate are shifted
and the country also expected in order to continue its long run of unbroken economic growth.
Further, as the technology also get more permeant and even the smart building also develop, real
estate company also use the smart technology into the working place which helps to cut time and
cost. Therefore, it is clear that the industry is actually work according to law of supply as well as
demand such that when, supply is greater than demand, the prices are automatically falls (Melser
and Hill, 2019). Moreover, the Real Estate industry actually show the low market share
concentration because of having no individual player that dominate the industry. The largest
company also have the strongest presence even in smaller market of Australia such that
Australian Capital Territory. It is so because the operators are self- employed and mostly have
local firms only, they all participate in the national franchise system only.
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Illustration 1: The Weighted Capital city residential property index
(Source: Australian Bureau of Statistics, 2016)

Market Structure.
In Real Estate industry, the property market share occupies a special place and even the
in that, the residential property also holds special place in the Australia economy. As per the
statistics, the value of Australian residential property also climbed considerably and as per the
CoreLogic analysis which is conducted in 2018, the middle value of houses in Australia is
increases up to 412% from last 25 years. Thus, it shows that it creates negative impact upon the
economy of the country because people are not spend money (Australian Housing Market,
2018). On the other side, the growth of the property values also spread in well manner and it is
also measured by the annual percentage that Australia's major cities such as Sydney which lead
the nation up to 7.6% and Melbourne, it lead the nation at 8.1%. But the smaller cities such as
Adelaide and Brisbane are consider the weakest growth across the country's capital because it
only raises the residential property market up to 5.9% (Australian Housing Market, 2018).
Even it is also analysed that housing market is consider quite important for the economy
because for many people, owning a house is one of the most important investment. It is often the
cornerstone for financial wealth as well as a supportive factor in order to make sure the long term
personal health. The proper market is a key pillar that hold the national economy of Australia,
that is why most of the members of the society have a interest in the residential property market.
Apart from this, at the end of 2018, the Australian market share slowly fell down and it is also
realized that the total value of Australian residential property in Australia's capital cities has
fallen up to 7% from their highs (Real Estate Services, 2018). Moreover, the largest part of
residential property from Sydney and Melbourne market also lays down by 11% and 7%
accordingly. Thus, sudden slows down of the market share of property share become the biggest
concern and even it will also have consequences for the entire Australian economy too.
On the other side, from last five years, a booming residential property market supported
the operators in the Real Estate Industry. Further, government incentives and falling interest rate
also drive the growth of housing prices. But, due to fall in number of housing transfers from last
three years also forced the growth of industry (Wong, 2017). The market of commercial property
also raise strongly in the same period that helps to increase the demand of industry services.
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As per the above graph, it is interpreted that the debt of income is increases form 1990
and the market activity also begun cooling with the house price growth that slower in the later
half of 2017. Despite from this, the residential market generally continue to buoyed by other
fundamentals and underlying demand also remain solid with the strong population growth that
continues in 2020 (Reed and Pettit, 2018).
The Industry's associated issue
The real estate is consists of different sector but it mainly focuses on the residential
property. On the other side, the industry also faces some issues that also affect the industry in
negative way. Some of them are as mention below:
Affordability: It is the biggest issue face by the industry in which housing prices of
Australia is relative to average income, is highest in the world. Even in 2011, it is observed that
the house price is average six times average household income as compared to 1990. Therefore,
it is the prompted speculation which actually Australia is experiencing a real estate bubble like
other country faces (Poon and Brownlow, 2015).
As per Demographia Housing Affordability Survey, 2017 the middle multiple of house
prices in cities is estimated 6.6 times in Australia while 3.9 in US and 4.5 in UK. Thus, it shows
that the Housing property is overvalued (Key Issue of Australian Housing Market, 2017). It is so
because the sudden shift from the high to lo interest rate has raise borrowing as well as buying
power too. It also taken the Australia's household debt to income ratio and another reason is such
that there has been a lacking of supply response for demand.
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Illustration 2: Housing Debt to Income in Australia
(Source: Housing Debt to Income in Australia, 2017)

Immigration to Australia: It is observed by different economist that high immigration
and inclination of new arrivals to cluster in the capital cities of Australia is intensifying and thus
it is consider as an issue for housing market. As per the Federal Government Policies that
demand for housing like high level of immigration and the capital gains, tax discount and
subsidies in order to boost the fertility as well.
Foreign Investment in Residential Property: The federal government mainly introduce
the laws that relaxing the rules for the foreign property buyers of Australia. Moreover, as per the
Foreign Investment Review Board, the foreign investment in Australia's real estate also increased
by more than 30% year to date (Robertson and Rogers, 2017). As per the Reserve Bank of
Australia it is realized that the country has low number of investor and that is why, foreign
investor increases in the country that affect the overall economy of Australia.
Negative gearing: The property of Australia also invest different practice of negative
gearing and this also occur when the investor borrow the money to fund the property. Even the
income that is generated by the property is less than the cost of owning as well as managing the
property by including the interest. Moreover, the investor is also expecting the capital gains
which also compensate for the shortfalls. Even the negative gearing also receive the considerable
media and the political attention because of the perceived distortion which is actually create3s
with the rise prices of residential property. In next year, when labour being elected in next
federal elections, the banks of Australia also issue less interest only on loans which are actually
basic that used for a negative gearing (Wong, Higgins and Soemarsono, 2018).
Interest rate: If there is an adjusting rate in the Reserve Bank of Australia which is
consider the favoured tool in order to keep the country's economic growth . It is analysed that
lower interest rate also promote borrowing, meaning taking on debt in order to invest in the
property to become more attractive. While on the other side, due to lower interest rate that makes
an existing debt less expensive and also help with existing mortgage. Therefore, this factor link
with the Real Estate directly because when there is high interest rate then the spending is low
that slows down the market rate of Property market.
Supply: It is also directly link with the industry and in Australia, the supply can be one of
the more litigious issue in housing policy that affect the industry in negative way. It is so because
different planning, regulations and different duties between state and local government. Thus,
when supply is limited the price is rise and vice versa.
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Impact of the issue on the industry and on Australia Economy
Real estate have different issue but these issue also directly affect the economy of country
in negative way. Such that movement in housing price also affect the economy through different
channels and this also influence consumer spending which include through the spending that
may also occur when people move from home. Sudden change in the price of house or
residential property also create the impact on access to finance on small business because they
have to take loan for collateral (Cerutti, Dagher and Dell'Ariccia, 2017). As a result, it directly
affect the financial institution of the country and the economy of the country also got affected.
As per the supply and demand model, that helps to analyse the price in market and it also
postulates everything may remain stable but the only thing varies that is labour and liquid
financial assets as per the demand. As per the supply schedule that shows that the relationship
between the price of the good and the quantity supplied. Therefore, as per the law it is state that
when there is low supply then the demand is high and as a result it directly increases the price. In
the same way, the Real Estate of Australia, the supply is quite high but the demand is low, as a
result it raise the price of residential property (Rogers and Koh, 2017). Due to increase in price,
customers are not spending high amount for purchasing the land, thus it creates negative impact
upon the country.
In addition to this, it is also analysed that when the economic growth is strong, there is a
increase demand for the labour as a result it lower down the unemployment rate and as a result, it
also increases the wage as well as increase the consumption that generally lift the confidence
(Impact of Issues on economy of country, 2017). Therefore, if consumer will become the better
off then they are more able and also easily purchase house as well. Thus, government has to
make different policy that helps to maintain the demand and supply in better way.
Government Policy
In order to overcome the issue of Real Estate In Australia, there are different policy made
by the government of Australia, such that as per the Australia Property Law that regulate and
prioritising the Property Law rights, its interest as well as responsibilities of individual. This law
mainly priorities the rights and also classify different property which may be real and tangible.
On the other side, the government of Australia also introduce Property Law which mainly define
the requirement that needs to be met with the Australian Law before the real estate. On the other
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side, it is also linked with the responsibilities as well as liabilities that is imposed to people who
actually own the land in Australia (Moorhead and Armitage, 2019).
In addition to this, it is also analysed that Consumer Protection Legislation also help to
minimize the issue of Real Estate industry such that When an individual faces any issue with
regards to renting, buying and selling home, the law helps to protect the person from any
misleading because in this situation, real estate agents sometimes mislead the person. Therefore,
as per the law which determine the real estate agent obligation such that it is unlawful for real
estate agent to intentionally mislead any person and gives the false impression as well as make
false and inaccurate claims too. If they made dummy bidding which is illegal in the eye of
Australian Government, they there licence may finished. Therefore, the government of Australia
keep making laws that helps to protect the right of customers and minimize the issue of Real
estate industry as well.
Moreover, by determining the potential risk of the property market, government also
takes an action such that Policymaker of Australian Prudential Regulation Authority (APRA)
also introduce the new regulations in order to discourage investor loaning by capping the amount
of investor only loan bank could extent (Melser and Hill, 2019). In addition to this, in the same
time, the federal government also bring new tax on the foreign investor to edge foreign demand
for Australian Property Market in order to extract revenue from the steady flow of capital.
CONCLUSION
By summing up above report it has been concluded that there is a fluctuation in the
economy of the country such that as the supply is high which means the prices of the residential
property is quite high but the demand is low. As per the study it has been concluded that from
last many years, the market share of Real Estate in Australia is decreases and it also concluded
different issues as well. Among all, the foreign investment is consider the biggest threat that
affect the overall market structure of the company. Moreover, this also creates negative impact
upon the economy of Australia that is why it is quite necessary to minimize the issue. Further,
report also concluded that government introduce Property Law and Australia Property Law that
helps to regulate all the issue.
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REFERENCES
Books and Journals
Cerutti, E., Dagher, J. and Dell'Ariccia, G., 2017. Housing finance and real-estate booms: A
cross-country perspective. Journal of Housing Economics. 38. pp.1-13.
Melser, D. and Hill, R. J., 2019. Residential Real Estate, Risk, Return and Diversification: Some
Empirical Evidence. The Journal of Real Estate Finance and Economics. 59(1). pp.111-
146.
Moorhead, M. and Armitage, L., 2019. Real property development process, history and
evolution. In The 25th Annual Pacific Rim Real Estate Society (PRRES) Conference.
Poon, J. and Brownlow, M., 2015. Real estate student satisfaction in Australia: what matters
most?. Property Management.33(2). pp.100-132.
Reed, R. and Pettit, C. eds., 2018. Real Estate and GIS: The Application of Mapping
Technologies. Routledge.
Robertson, S. and Rogers, D., 2017. Education, real estate, immigration: Brokerage assemblages
and Asian mobilities. Journal of Ethnic and Migration Studies. 43(14). pp.2393-2407.
Rogers, D. and Koh, S.Y., 2017. The globalisation of real estate: The politics and practice of
foreign real estate investment.
Wong, A., 2017. Transnational real estate in Australia: new Chinese diaspora, media
representation and urban transformation in Sydney's Chinatown. International Journal of
Housing Policy.17(1). pp.97-119.
Wong, P., Higgins, D. and Soemarsono, C., 2018. Australian Housing Market and the Indonesian
Foreign Real Estate Investment. In APHRN 2018: Smart and Sustainable Housing
Futures (pp. 87-97). University of Hong Kong.
Online
Real Estate Services. 2018. [Online]. Available through:
<https://www.ibisworld.com.au/industry-trends/market-research-reports/rental-hiring-real-
estate-services/real-estate-services.html>.
Australian Housing Market. 2018. [Online]. Available through: <https://www.ig.com/au/news-
and-trade-ideas/other-news/australian-housing-market—everything-you-need-to-know-
190128>.
Key issue of Australian Housing Market. 2017. [Online]. Available through:
<http://resoluteprivate.com.au/australian-housing-market-key-issues/>.
Impact of Issues on economy of country. 2017. [Online]. Available through:
<https://www.rba.gov.au/speeches/2019/sp-gov-2019-03-06.html>.
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