Foreign investment is being blamed as the main driver of soaring property prices in Australia’s main capital cities.

A survey of property analysts at Australia’s biggest banks and property development companies has cited property investors as the most significant driver of demand and prices in the Sydney, Melbourne, Brisbane and Perth housing markets.

Foreign investors were named the main driver in each city, but particularly in Sydney, where 96 per cent of analysts said foreign investment was a significant to very significant driver of increased demand and prices.

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Negative gearing and self-managed superannuation funds were also to blame, according to the Australian Property Institute’s (API) bi-annual Property Directions Survey.

The Reserve Bank of Australia has recently expressed concern about the flood of investors in the property market and is looking at new regulations to curb investor activity.

The central bank says loans to property investors are growing at their fastest rate in seven years, pricing some first home buyers out of the market and creating an imbalance where new lending to investors is out of proportion to rental demand.

House prices have risen more than 10 per cent in the past year, according to property research business RP Data, while Sydney prices have jumped almost 24 per cent in two years.

A parliamentary inquiry is currently underway into what role foreign investment is playing in driving prices, and whether it’s locking first home buyers out of the market.

API NSW president Tyrone Hodge said the interest of foreign buyers in Australian housing was no surprise, given the good returns on offer here compared to the rest of the world.

He said supply shortages were putting pressure on home prices, and that foreign investment in residential development sites would actually help to bring prices down.

“If you’re just looking at the demand side and not the supply side, you’re only getting one half of the story,” Mr Hodge said.

“We’re not seeing the supply coming on at a price that makes it affordable for first home buyers and a lot of that, I believe, is based on the cost of taxes like stamp duty.”

-AAP