Out With the New and In With the Old

Out With the New and In With the Old

It would be fabulous if when property commentators write about the market they actually differentiate between the two markets that we have, being the new markets (namely houses and apartments under construction) and the old markets being the existing homes.

Now it has been very well documented in recent times that the “new” markets are about to face their first big Litmus test with the majority of lenders blacklisting a number of areas because they believe they are over exposed. If one looks at this “new” construction in Australia there were:

  • 2009 – 102,347 new houses and 37,672 new apartments totaling 140,019
  • 2010 – 111,382 new houses and 63,801 new apartments totaling 175,183
  • 2011 – 94,711 new houses and 59,419 new apartments totaling 154,130
  • 2012 – 90,239 new houses and 60,102 new apartments totaling 150,341
  • 2013 – 95,673 new houses and 69,972 new apartments totaling 165,645
  • 2014 – 112,678 new houses and 84,461 new apartments totaling 197,139
  • 2015 – 112,718 new houses and 105,799 new apartments totaling 218,517
  • Source: ABS

Already we are hearing that these “new” markets are experiencing price corrections in the last quarter of 2015 with price corrections of up to 30 per cent in Melbourne and 19 per cent in Sydney, according to global real estate group JLL. Now this is exactly what should happen in real estate markets as they self – correct – they don’t require government intervention as the ALP is promising, that should they be elected they will significantly change how negative gearing is determined – in a word this would be a disaster.

FiveWaysPaddington

SYDNEY AERIAL PHOTOGRAPHY

I said at the time that the Labor announcement was nothing more than policy on the run and this has now been confirmed. The BIS Shrapnel report found limiting negative gearing to “new” houses could lead to lower house prices, rent rises of up to 10 per cent, cost the budget more than it saved and cause unemployment to rise. This week we learned that Australia’s seasonally adjusted unemployment rate surprisingly decreased to 5.9 percent in October of 2015 from 6.2 percent a month earlier, and the lowest figure since May 2014. The economy added 58,600 jobs, the largest gain since March 2012.

This would not be the first time that the ALP was forced to back flip on negative gearing changes when in July 1985, the Hawke Labor Government effectively abolished negative gearing for all future rental property investors. Then two years later in 1987 the Hawke Government reinstated full negative gearing.

So here is the question I would have asked the Opposition Treasurer when he announced that if elected the ALP would only apply negative gearing to ‘’new” properties because currently 93 per cent of investors are favoring “old” properties in their investment portfolios. Buying “new” properties can often resemble buying a “new” car in that it depreciates 20 per cent when you drive it out of the showroom.

Now back to my question – if someone owns an “old” property and has no investment properties then why, should they be penalised because the ALP policy would then financially disadvantage that homeowner given investors are barred from acquiring their property? Maybe the question the Opposition Treasurer needs to be asking is why do property investors much prefer “old” properties over “new” properties? Of course that question bears little relevance when the policy decision had no due diligence.

The irony that I find interesting is that the Chinese drove Australia’s mining boom and now that this has come to a dramatic halt we are now gift wrapping our “new” properties to the Chinese buyers. No surprises to see the Foreign Investment Review Board release its latest report at 4.59pm last Friday which identified that China is now that the largest foreign investor in Australia, with $46.6 billion in proposed investment in 2015. Won’t that get ugly should they decide not to proceed when the properties that are currently under construction are completed?

As I have said now on many occasions Australia has never before witnessed nor relied upon such a massive overseas investment which is also driving prices up. Little wonder lenders are black balling certain areas and now increasing their respective lending rates as they too see that this is leaving them very vulnerable. The lenders are very astute as they see problems ahead so slowly but slowly they are increasing their respective lending rates in an attempt to give that growing property tree a shake.

Regardless of which theory you ascribe to we will be hearing and reading plenty more about these topics in the months to come.

MOSMAN – 2088

    • Number of houses on the market this time last year – 58
    • Number of houses on the market last week – 43
    • Number of houses on the market this week – 40
    • Number of apartments on the market this time last year – 60
    • Number of apartments on the market last week – 48
    • Number of apartments on the market this week – 45

CREMORNE – 2090

    • Number of houses on the market this time last year – 2
    • Number of houses on the market last week – 6
    • Number of houses on the market this week – 4
    • Number of apartments on the market this time last year – 8
    • Number of apartments on the market last week – 14
    • Number of apartments on the market this week – 14

NEUTRAL BAY – 2089

    • Number of houses on the market this time last year – 3
    • Number of houses on the market last week – 11
    • Number of houses on the market this week – 10
    • Number of apartments on the market this time last year– 32
    • Number of apartments on the market last week – 24
    • Number of apartments on the market this week – 27

.

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.

Click Here

For this week’s open for inspections

Click Here

Source: APM Price

One Response to “Out With the New and In With the Old”

  • Ann says:

    They have gone very quiet on the Negative Gearing “Policy”and I think polling is telling them what the voters really think. Pity they did not undertake that task extensively before they released the policy.

Leave a Reply

Your email address will not be published. Required fields are marked *