Home prices in Australia may be unaffordable for first time buyers, but for Chinese investors Melbourne's property prices have fallen to multi-year lows thanks to the depreciating Australian dollar.
That's the opinion of IG chief market strategist Chris Weston, who has looked at the Australian property market through the eyes on an overseas investor.
"We know overseas money has been increasingly making its way into the Australian housing market," Mr Weston said, with 15 per cent of the national housing supply being purchased by Chinese investors alone in 2014.
While in Melbourne and Sydney, Chinese investors were purchasing around 25 per cent of new housing stock, Mr Weston said.
Credit Suisse has estimated a further $60 billion in Australian real estate purchases by Chinese investors over the coming six years.
Mr Weston said Chinese investors were taking profits from the domestic sharemarkets after a "sensational" move higher, and using those funds to buy property in "tier-one" cities.
China's stock market value topped $US10 trillion for the first time on Monday, with the Shanghai Composite Index rallying 152 per cent in the past 12 months.
While the Chinese property market has stabilised, Mr Weston said there was also a keen interest in geographical diversification -- with the Sydney and Melbourne property markets favoured.
"Chinese investors want returns, and deposits providing even an 8 to 9 per cent yield don’t cut it these days," he said.
Mr Weston said looking at Sydney house prices in Australian dollar, there was a clear "rampant trend higher" since 2012, supporting the arguments that there was a speculative bubble in the market.
But when those house prices were adjusted into US dollar or Chinese yuan, Mr Weston said the prices don't look so frothy -- thanks to a depreciating Australian dollar, which recently hit 6-year lows against the US currency.
"Looking at Melbourne property prices adjusted for the strength in US dollar or Chinese yuan, one can see that property prices are actually at multi-year lows," Mr Weston said.
Over the past two years a Chinese investor who purchased a $1 million property in Melbourne would have made around $200,000 on the currency trade, given the depreciation in the Australian dollar against the yuan.
But Mr Weston said there were clearly going to be many gyrations in the currency market, and most people don't buy a property with a two-year view in mind -- especially when the Reserve Bank of Australia comes to raising rates.
The Australian dollar hit its peak of US110c in 2011.
"What percentage of foreign investors are choosing to hedge investments is unclear, but one would suspect it is very low, with only the sophisticated or wealthy looking to do so," Mr Weston said.
"Still, this is something that should get more focus especially if the Australian dollar really does catch up with the terms of trade."