What the rising dollar means for property

Safe haven money propping up the Australian dollar is volatile, but there are other markets, particularly property, where the same safe haven investments are 'locked in' and creating long-term shifts.

Last night’s rise in the Australian dollar against the greenback, at a time when commodities were easing and the American dollar was rising, delivers us a series of important messages.

And those messages will have particular significance to the property market and may help explain the strange goings on behind David Jones' recent suitor.

We all understand that we are attracting a share of the safe haven money that wants lesser exposure to the euro and usually already has over-exposure to the US dollar. That safe haven money is being boosted by the fact that Australian interest rates are higher than the US.

Of course it is dangerous money, because if we encounter a significant fall in mineral prices it would flee the country, causing considerable disruption to our banking system and pulling down the dollar.

Of more long-term significance is the fact the stable dollar is contributing to a boost in overseas interest in our residential and commercial property markets. Australia’s largest apartment developer, Harry Triguboff, says that the strong buying by the Chinese (The Bondi house that China built, April 18) is being multiplied by interest from the Middle East, India and other parts of Asia. Inner city areas are attracting the most attention, although in Melbourne's inner city apartments there appears to be over supply.

Over the weekend a friend of mine was trying to buy a house worth just under $2 million in Brisbane. A Singapore investor flew over and paid what was required. The house had been in the market for two months and had failed to sell at an earlier auction. The money flow is increasing.

The residential buying tends to boost the value of inner city apartments and houses. It is also pushing Australian family buyers into outer suburbs. Apartment developers like Harry Triguboff want the planning, zoning and other rules eased to lift the supply of Sydney inner city apartments to cater for the demand.

The overseas property buying is locked in here so this form of 'safe haven' buying is different to the interest bearing securities slush money coming out here. But property buying raises more controversy.

Almost certainly the overseas buying will spread to areas of the commercial market, which have a far wider array of products than the inner city residential markets.

And so we are going to see strange events take place as overseas investment houses test whether property is available and then try to match that property against the desires of their buyers. When prominent public companies like David Jones become involved in these exploration adventures it can be very disturbing to the stock market. Insider trading allegations will become part of the story.

Switzerland will warn us that if you are a safe haven currency for a long period of time few young people can be employed in export industries. Switzerland is priced out of the market.