News & Media

September 2017 Newsletter

POLISHING THAT CRYSTAL BALL (AGAIN)  

The spring selling season is gaining momentum - and all eyes are on auctions to get a sense of how the market is going to perform.

 Winter has been a mixed bag (in the second weekend in August Sydney recorded its highest clearance rate in two months, while the subsequent weekend saw the rate fall below 70% for the first time in two months), so spring may well be the better litmus test.

 What the market will do is certainly a topic that doesn’t have everyone singing from the same hymn sheet. In August, Domain asked five top Australian economists to provide their forecasts for price growth in Sydney over the next 12 months – and their answers were revealing.

 Shane Oliver, AMP Capital’s chief economist, forecast a 7% decline in Sydney apartment prices for the next 12 months; Market Economics’ Stephen Koukoulas tipped a 2% drop; and Robert Mellor, managing director of BIS Oxford Economics, expected a 1% fall.  If their predictions are right, it means by June 2018 Sydney’s current apartment median of $785,000 could drop to between $705,000 and $750,000.

 The reasons for the price fall were due to a range of factors, including no change in the official cash rate, a likely increase of 25 basis points for bank mortgage rates on interest-only loans for investors, another round of tightening measures from APRA, a surge in the supply of units, and a cooling of offshore demand.

 For house prices, Mr Mellor believed prices would fall 2%, Dr Oliver and Mr Koukoulas said they’d be flat, while the other two economists forecast reasonably strong price growth. Indeed, Compass Economics chief economist Hans Kunnen expects a growth of 5-10%, driven by firm population growth and good levels of economic activity. “Interest rates are not expected to rise and current APRA regulations seem to have stemmed the excesses of investment lending,” Mr Kunnen said. “While pockets of oversupply may occur … there is also likely to be reasonable demand and access to finance.”

 That would mean Sydney’s median house price could be anywhere from $1.15 million to $1.27 million by mid-2018.

CHINESE BUYERS ON THE WAY OUT  

Chinese regulators have formalised new guidelines restricting Chinese corporate investment overseas – and the upshot is that it could further compound the drop-off in new developments in Australia.

The Chinese government has moved to restrict corporate investment abroad over the past year after a surge of outbound deals pushed the value of the Yuan lower and caused concerns about capital flight. Real estate and hotel deals have been placed on a ‘restricted’ list, which could affect new residential developments. According to a Knight Frank market insight report, in 2016 38% of residential development sites were purchased by Chinese companies.

Individual Chinese property buyers have already been hit by increasing enforcement of an annual $50,000 limit on foreign currency purchases.

The chief economist of realestate.com.au, Nerida Conisbee, said there would be less development because of the restrictions, and property prices could continue to rise as a result.

 In a news.com.au article, Ms Conisbee said: “Both cities [Sydney and Melbourne] are really starting to see a slowdown in prices already and I think with less supply in the market it will mean prices will not stabilise as much as people are hoping. “If the level of supply kept up, I do think a slowdown would have led to a possible reduction in prices – but this will continue to support price growth in Melbourne and Sydney.”

According to Chinese international property portal Juwai.com, Chinese inquiries in Australian residential property was down 9.7% in the first half of the year compared to the same period in 2016.

The Australian head of Juwai.com, Jane Lu, told news.com.au that Chinese investment in Australian property is down from 2016 and on track to be close to 2015 levels. She said the top goals are risk diversification and children’s education. “Australia is a very appealing destination in both these areas,” she said in the article. “When you compare the price of similar property in China and Australia, Australia still offers good value.”

Ms Lu said Chinese buyers were still adjusting to the new regulatory and tax rules in Australia. Foreign investors in Australia were hit with increased taxes and charges following the 2017 Budget being handed down. Those who leave their residential properties vacant for more than six months a year were hit with an annual charge equivalent to the property’s foreign investment application fee. The federal government 

also introduced foreign residents from capital gains tax exemptions and imposed a 50% cap on foreign ownership in property developments.

 In addition, NSW doubled its foreign-buyer surcharge to 8%, while Queensland implemented a 3% surcharge and the Victorian government axed the stamp duty concession for off-the-plan investors and more than doubled the foreign-buyer stamp duty surcharge from 3% to 7% in 2016.

 

Empty “nesters”

A survey of mainland Chinese customers by investment bank UBS shows that a quarter of Chinese buyers purchase residential property and hold it empty as an investment. The UBS Evidence Lab: China housing survey, also showed that a further 45 per cent purchase property as an investment that they rent out, so they’re unlikely to be affected by higher local surcharges on foreign buyers of residential property, such as in Australia. Interestingly, the survey of 3300 people (not high net worth individuals) also showed they were mostly undeterred by China’s tighter currently controls in their aim to buy residential property.  

Top 10 countries for Chinese property buyers in 2017

1. United States

2. Australia

3. Thailand

4. Canada

5. United Kingdom

6. New Zealand

7. Germany

8. Japan

9. Malaysia

10. Spain

Source: Juwai.com

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