Are foreign buyers about to ‘short’ our residential markets?

Are foreign buyers about to ‘short’ our residential markets?

For years now I have contemplated how an investment banker would run the Australian economy and now we are about to find out with Malcolm Turnbull taking over the reigns as prime minister.

Straight after the news broke I posted a message on Mr Turnbull’s Facebook page – “Congratulations on becoming Prime Minister of Australia.If I can ask you to do one thing – could you please appoint Kelly O’Dwyer as Housing minister. It’s rather embarrassing that the Australian government does not have a Minister for this important portfolio.”

There are major dark clouds forming and what we might expect is being discussed by a few, and if we are proven correct this will be a major storm that will reverberate across Australia. The problem started back in 2008 when the then prime minister Kevin Rudd and his treasurer Wayne Swan changed the ratio permitting foreign buyers to purchase off the plan in Australia. The ratio was adjusted from 50 per cent to 100 per cent (which is where it currently sits) at that time I wrote that such a move was fraught with danger.

Take Sydney for example, where tens of thousands of new apartments have been sold off – the – plan, there now are grave concerns that the foreign buyers will walk away from the deposits and won’t settle. With interest we should be watching the stock market in China which has lost approximately 40 per cent in the last three months, where when we see stock market corrections money is then diverted into real estate – this time around this may not be the case. Then we see that volatility on the global equity markets in August was the highest since 2011.

Warning_sydney_aerial_photographySYDNEY AERIAL PHOTOGRAPHY

The first signs of cracking in the residential market will be, when these new developments are completed, how many apartments that were sold off the plan are immediately placed back on the market. BIS Shrapnel recently reported that NSW is set to become Australia’s top home builder in 2016, having overtaken Victoria which has held this position since early 2000.

Should the foreign buyers spook then the new construction will in all probability come to a grinding halt where history shows prices start falling significantly due to an oversupply on the markets. Thanks to the overseas buyer ratio being doubled this spells double trouble, given what we have seen with the real estate investment markets has been unprecedented. Historically we have absolutely no measures on what may happen aside from expecting the worst.

We also see that APRA’s policy initiatives are now cooling the markets which may need some urgent critiquing given that if the property markets cool too quickly this will spook the foreign buyers in to a frenzy of defaults.

On the flip side we have the Australian government via the Australian Taxation Office (ATO) forensically examining all property transactions for existing homes that may have been illegally acquired – I predict this will be huge. There is approximately another 6 weeks left of the amnesty period before the ATO starts prosecuting.

Thus far this crackdown on illegal purchases has more than doubled to over 500 investigations and that’s before the amnesty period ends – predominately at this stage the ATO is relying on public tip offs. Treasurer Joe Hockey let the cat out of the bag this week when he commented “So we are getting on with the job of enforcing the laws. There has been no enforcement and no successful order for at least the last 20 years. But we have taken this decision to ensure that there is integrity in the foreign investment regime and that those people who unlawfully hold Australian residential real estate are caught.”

Going by that one must be thinking that this investigation is so huge that they are now looking back 20 years – which would lead to an unprecedented number of divestment orders in 2016. Should we see the off – the – plan investors defaulting it would not be smart for the integrity of Australian property prices to also run divestment orders on existing dwellings.

Another point that needs raising is that NSW is doing the major lifting in terms of the Australian economy as this is the hub for economic momentum. The Reserve Bank of Australia, APRA, ATO, lenders and elected politicians need to immediately start consulting property developers and industry specialists and start drawing up a battle plan.

Until a clearer picture is presented foreign ownership rates from 100 per cent need to be cut hard. So that’s why Malcolm Turnbull needs to appoint a Housing minister next Monday as he/she will have plenty of work to do given I see the property markets now on a “High Alert”.

MOSMAN – 2088

• Number of houses on the market this time last year – 64

• Number of houses on the market last week – 56

• Number of houses on the market this week – 52

• Number of apartments on the market this time last year – 44

• Number of apartments on the market last week – 49

• Number of apartments on the market this week – 51

CREMORNE – 2090

• Number of houses on the market this time last year –10

• Number of houses on the market last week – 6

• Number of houses on the market this week – 7

• Number of apartments on the market this time last year – 16

• Number of apartments on the market last week – 20

• Number of apartments on the market this week – 22

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 7

• Number of houses on the market last week – 2

•Number of houses on the market this week – 3

• Number of apartments on the market this time last year– 33

• Number of apartments on the market last week – 37

• Number of apartments on the market this week – 29

For this week’s sales in Cremorne real estate, Cremorne Point real estate, Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Neutral Bay real estate, Cammeray real estate.

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Source: APM Price Finder

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