People like to rag on Chinese investors, but I think the main reasons are insane tax breaks and limited supply.
Further, a group called LF economics did a study on this - some graphs on page 22 here - http://www.aph.gov.au/DocumentStore.ashx?id=cafe7b04-e06c-4e... (PDF warning - it's a submission to the recent enquiry on house prices). Turns out that they found most Australian markets are in oversupply at the moment. They also found no correlation between supply and prices over the last 30 years, and have some points in there for why that would be the case.
In the end, it's more the availability of credit that determines the prices, not supply and demand.
Edit, better link: https://en.wikipedia.org/wiki/Negative_gearing#Australia
>Interest on an investment loan for an income producing purpose is fully deductible if the income falls short of the interest payable. The shortfall can be deducted for tax purposes from income from other sources, such as the wage or salary income of the investor.
And yes, it applies to shares too, but it's not possible to get this amount of debt leverage for buying shares.
There is also 100% CGT exemption if the property is owner-occupied. The worst part is that it extends up to 6 years after you move out (e.g. to rent somewhere cheaper). So you can buy a property, live in it for a year (at which point it's deemed primary residence), then rent it out for up to 6 years, move back in for a year, rinse, repeat, and avoid paying any CGT when you sell. Obligatory: none of this is tax advice.
How nice it would be if they did some data matching to determine who was actually living in a property as their primary residence, vs. changed their mailing address to that of their residential property to pretend it was their primary dwelling, and issued invoices for unpaid CGT.
Given foregone tax from the CGT discount and negative gearing represent significantly larger sums than that spent on Newstart, chasing property investors would seem to be lower hanging fruit...
However the bigger problem remains that capital is taxed at half the rate of labour and this matched with tax free pensions has meant people with built up capital have gotten extraordinarily rich in the past decade and a half at the expense generally of the younger generation.
I have friends who tell me they "need" (well, want to) live in their investment property for 6 months every few years, in order to get a refresh on their tax breaks?
But it's easy to buy a call options on shares, which is equivalent.
Why not?
> Shares are a lot more volatile, and
This is irrelevant.
> your guess needs to be accurate within a very short term or you lose 100% of your investment.
It's also easy to lose 100% of your investment when you buy property with leverage. At least with a call option you can't lose more than your initial investment. You can with property, unless you live in a jurisdiction which cancels the outstanding loan on a property after it's repossessed by the lender.
Perhaps your point is that, with a property purchase, you can ignore short term price movements. As long as you have enough money to pay the mortgage each month, you get 100% exposure to the price increase over 25 years, even though you put only 10% down and borrowed the rest.
The volatility doesn't matter. If I buy a 1-year call option on a particular share, it doesn't matter if the price goes up and down every day during that year. What matters is the price at the time the option expires.
What _does_ matter, and this may have been what you were thinking, is that it's hard to buy a long term call option on an individual share. The longest you can buy easily is probably 2 years, which is much less than the length of a mortgage.