The future strength of Australia's housing sector will be primarily determined by Chinese policymakers, says Altair Asset Management.
In a note to investors, Altair Asset Management chief economist Stephen Roberts said housing activity holds the key to Australia's economic growth – and China increasingly holds the key to Australian housing activity.
New home building approvals in Australia are outstripping population growth, Mr Roberts said, leading most analysts to predict a "brake being applied to the housing boom over the next year or two".
Supporting the slowdown theory, the positive influence of low interest rates via the growth in housing credit appears to be diminishing, he said.
Against that, foreign demand for Australian housing is continuing to rise, Mr Roberts said.
"There is even some talk that one fragile part of the Australian housing story, increasing failures to complete purchases by some that brought new apartments off the plan, is being underpinned by a new cohort of foreign, predominantly Chinese, investors prepared to pick up bargains," he said.
Australian housing is also relatively cheap to house prices in China, where some cities are experiencing annual price rises of 30 per cent or more, Mr Roberts said.
But it is Chinese policymakers who are likely to have the definitive impact on Australian house prices, Mr Roberts said.
"China has started to impose controls on outbound foreign investment," he said.
"At present, China’s authorities are tolerating the boom in house prices in Chinese cities, but that boom is likely to present a problem that needs addressing at some point next year with tighter policies that effectively hit housing in Australia as hard as housing in China.
"Australia’s over-extended housing boom may have been granted a stay of execution by continuing foreign investment, but even that force may soon face headwinds and most likely generated by authorities in China."