Strong outlook: The residential property market is expected to keep growing.

On the rise: John McGrath says prices could rise by as much as 10 per cent over the next 12 months. Photo: Rob Homer

Home prices in Sydney are being pushed up in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents.

The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market 

As much as 80 per cent of homes in parts of Sydney are being sold to Chinese buyers, said chief executive John McGrath.

Record-low interest rates and the biggest influx of investors in almost a decade are also fuelling prices.

“The Chinese market is extremely strong, the strongest I’ve seen a new entrant into the market,” Mr McGrath said. “Record low interest rates, the ability to fix such rates for a long period of time is very attractive.”

Chinese buyers, facing government restrictions on purchases at home, were the third-biggest source of foreign investment in Australian real estate, behind the US and Singapore in fiscal year 2012, the latest figures from the Foreign Investment Review Board showed. They accounted for $4.2 billion of transactions, a 75 per cent jump from 2010, according to the data.

Chinese are buying in Australia on expectations of capital growth, to provide a home for their children attending university in the country or simply to live outside China, Mr McGrath said.

At a recent property auction in Eastwood, all 38 of the registered bidders were of Asian ethnic origin, Mr McGrath said. The three-bedroom house with a double lock-up garage and two sun rooms opening on to the back yard, sold for $2.39 million, more than $1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.

McGrath, which has offices in New South Wales, Queensland and Canberra, has created a China desk in Sydney to cater to Mandarin-speaking clients and could eventually start operations on the mainland, he said.

'Unsustainable' price growth

“I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,” Mr McGrath said in a separate interview with Bloomberg Television.

While Sydney has been a “stellar performer” over the past six months, the city’s house price growth rate was unsustainable, he said.

House and apartment prices in Sydney rose 7.4 per cent in the eight months to August 31, compared with a national average of 5.1 per cent, the RP Data-Rismark Home Value Index showed.

More than 85 per cent of the homes that went to auction in the city sold successfully in the first weekend in September.

“There are long-term growth prospects but the current growth rates probably need to slow at some point soon,” said Mr McGrath, who forecasts prices could rise by between five and 10 per cent in Sydney in the next year.

Investors push in

Demand from investors, drawn by rental yields that remain above 4 per cent even as mortgage rates drop below 5 per cent, is also spurring price gains, he said.

Almost half of all home loans in New South Wales negotiated by Australian Finance Group, the nation’s biggest mortgage broker, were to investors in August, the highest level ever recorded in any Australian state, the company said.

Adding to the growth of investors in property is the rise of self-managed superannuation funds, Mr McGrath said. The funds, valued at $506 billion now, are expected to rise to $2 trillion by 2030 as more Australians choose to manage their own pensions, according to an estimate from the Australian arm of consultants Deloitte Touche Tohmatsu.

SMSFs can invest in a broad range of assets including stocks, bonds, cash deposits, property, artwork and even wine. Under certain circumstances, they can borrow money to invest in property and equities.

Bloomberg