The political deadlock in Australia appears to be doing little to deter international investors who are more focused on the country’s continued economic outperformance and solid property market.

Australia yesterday reported economic growth of 1.2% in the second quarter, the fastest pace of growth for three years.

But Australian national elections on August 21 have left no clear winner, with the two main parties, ruling Labor and the opposition Liberals, scrambling to win over three independent parliament members, potentially to form the country’s first minority government in 70 years.

On Wednesday, Labor signed a deal with the Green party, which drew record votes in the election but has only one member of parliament. The three remaining independents hold the balance of power and represent rural constituencies, with closer ties to the conservative Liberals.

The Liberals are broadly positioned as centre-right and more pro-business, pledging to axe an unpopular mining tax, while Labor is centre-left.

“As far as investments in Australia are concerned, a swing towards Labor is a swing towards a mining tax,” says one Hong Kong-based hedge-fund manager, who asked not to be identified because his company is in a quiet period. “A swing towards the Liberals is business as usual, and a much more capitalist approach.”

There’s the likelihood of political gridlock whatever the final shape of the ruling minority government. However, the country would likely only begin to lose out on foreign direct investment and stock-market inflows if the eventual political structure started to present a barrier to inward investment.

“Australia is not the only alternative for people looking around,” the manager says. “If it doesn’t come across as a good place to do business, people will look elsewhere.”

Man Shing, managing director with private-equity and property investment company Borderless Property Investors in Hong Kong, says the strong fundamentals of Australian real estate still make it attractive, whatever the result of the current political impasse.

“It doesn’t matter if it’s right wing or left wing in Australia or Austria,” Man says, appropriately enough given the name of his firm. “It matters if there’s the right regulation of the industry.”

Sydney’s commercial property market remains down some 20% from its peak prior to the credit crunch, Man adds. With capitalisation rates (effectively rental yield) at 6% to 7% and interest rates at 4% to 5%, institutional investors can continue to enjoy a reasonable spread on property investments.

That's a 200-basis-point spread on rental yields over the cost of money. The profit margin is greater for an investor when you factor in leverage, since investors typically borrow around 60% of the purchase price of any investment. Based on the down-payment, that would leave them with a greater profit margin, say around 300bp.

“In a normal institutional-investment context, 300 basis points is still a reasonable return for property, so there’s bullishness in the commercial sector,” Man says.

Australia has escaped recession for 19 consecutive years, and its economy is being propelled by strong demand for commodities from major trading partners such as China, India and Japan. Australian consumer spending was also unexpectedly high in the second quarter.

The results of the elections are perhaps most significant for the mining industry, which has the prospect of a controversial new tax hanging over it.

The incumbent left-leaning Labor Party had in April proposed a new 40% tax on mining producers, to take effect in 2012. The furious backlash from the mining industry was partly accountable for the ousting of Kevin Rudd and the installing of Julia Gillard as prime minister in June.

The Liberal party, under leader Tony Abbott, has pledged to scrap the tax.