A New Era in Residential Property

I think this is a very good read and explains what is happening at the moment in some prominent markets - (Australian Business Review) May 2016
Nocookies

There have been two sudden and dramatic shifts in the Sydney apartment market, which are set to spread to Melbourne, Brisbane and other markets.

It may herald a new era in Australian residential property.

The first shift is that the level of Chinese buying of Sydney apartments has fallen dramatically. The largest Sydney developer, Meriton’s Harry Triguboff, estimates that in the last month or so Chinese buying has halved.

The Chinese and other Asian buyers have been buying over 80 per cent of Sydney apartments in recent years so this is a huge and dangerous development.

But just as everyone began to prepare for the resulting calamity, a second dramatic shift has taken place in the last few weeks: There has been a surge in Australian buying of both existing and ‘off the plan’ apartments.

The increased buying has been so sudden that there has not been time to fully analyse the trend, but it seems that two forces are driving it.

First, the Coalition’s retrospective decimation of superannuation as a savings mechanism for up-and-coming executives and salary earners has turned Australians towards negative gearing as a savings mode.

And, secondly, this trend was accelerated by the fall in interest rates as well as the signal by the Reserve Bank that if inflation remains at current levels or moves lower, further interest rate cuts would be in the pipeline.

The latest surge in local buying includes first home buyers but increasingly young Australians are negatively gearing investment properties and either living at home or renting. Indeed, it has become the modern fashion for young people to be investors rather than first home buyers.

As we know, the ALP plans to confine negative gearing to new developments and reduce the capital gains tax. Australians who are suddenly buying apartments either don’t expect Bill Shorten to win the election and/or are setting up their negative gearing prior to a change in the legislation should Shorten win. An ALP win is now a real possibility. (Business should prepare for a Shorten win, May 11.)

Why have the Chinese stopped buying in Sydney? We don’t know the full answer but almost certainly it will be a combination of the fact that it is becoming increasingly difficult to transfer money out of China and Australian banks have withdrawn the welcome mat for overseas buyers.

Those who bought apartments ‘off the plan’ 18 months to two years ago are settling well because the higher values enable them to gain bank finance, but there is a fear that when more recent ‘off the plan’ purchases come up for settlement in 18 months to two years the funding to complete the purchase may not be available.

We are therefore set for a fall in apartment development and/or prices unless the local buying surge gathers momentum.

While Brisbane shows similar trends to Sydney, Chinese apartment buying in Brisbane has not been nearly as dominant as Sydney. In Melbourne, Asian buying has been at least equal to Sydney and may have been greater.

Whereas Meriton dominates Sydney, Melbourne is a far more complex market and on July 1 the state government is set to raise the levy on foreign purchases of apartments from 3 per cent to 7 per cent. That is causing a surge of apartment developments to be brought forward so there is intense marketing to foreign buyers suggesting they buy before the July 1 tax increase.

Melbourne’s foreign apartment buying is closely aligned with education and, unlike Sydney, there are far more properties that have been bought by the Chinese and left empty. (In Sydney, Meriton exerts great pressure on foreign buyers to rent and there are few empty apartments.)

Once the July 1 rush is out of the way Melbourne will almost certainly follow Sydney and see a decline in Chinese buying. Already in Melbourne older apartments are selling for lower prices than new apartments. This two-tier market is very dangerous and lowers the level of bank financing for new apartments.

The sudden fall in Chinese buying in Sydney is of great long-term significance to the nation. The Chinese buyers not only underpin the market values but have also enabled the nation to adjust to the fall in mining investment. They have been a key element in our prosperity. If it continues to be difficult for the Chinese to buy apartments it may also affect our tourism and education, which have been key export markets for Australia.

Meanwhile, Meriton reports that the rental market is strong in Sydney and the Gold Coast but Brisbane has dropped by 5 per cent because of a very big increase in units.

What about Harry Triguboff as Australia’s largest apartment owner? What is he doing?

“We in Meriton are well placed whatever takes place. We have pending sales for $1.5 billion, which will probably be mostly honoured by the banks. We sold a lot of our old stock, so we are debt free,” he says.

 

Interesting article - education plays a key role in Asians (chinese, koreans etc) buying property. Unfortunately, it is not beaches. Having a degree from a top tier universities is like a status symbol in asian culture. Even certain degress in law are not recognized in certain asian countries to practice if the university is not prestigious enough. One would not aspire to go to Victoria University or Griffiths but rather UNSW or Melbourne Uni or Queensland Uni

So the states with the top universities and high schools will always have the biggest attraction

1. Syndey -- UNSW, Sydney University, Macquarie, UTS
2. Melbourne -- Melbourne Uni, Monash, Swinburne, Latrobe, RMIT
3, Queensland - Queensland Uni

Secondly for example, monash, swinburne, latrobe etc all have a long history close to more than 20 years of having asian twinning programs like 1st year (asian country), 2-3rd year (melbourne). They alreay have locked in thousands of students. Kudos to them, even working with foreign governments to get their scholarship programs established with their universities. Once you are student, it is not hard to get FIRB approval to buy a property, Some stay on for 5 year studies etc and buy an apartment or house etc. It is the reason why clayton (where monash uni is ) which was basically a 500K+property suburb has now closed into nearly a million dollar. The suburbs of balwyn and glen waverley (melbourne), chatswood, eastwood, (sydney), sunnybank (brisbane) will no doubt stil perform well.

As for getting money out, i know of many people doing shell companies buying property with directorships of aussies locally but controlled by other overseas entities which directorship are the foreign buyers. Also there are business going around selling milk bars, restaurants to get residency to foreign buyers. They will find a way one way or other to buy this.

Demographics unfortunately play a role in understanding which suburbs have more "buying/spending" power as some have more than others. Which is why when i visited logan and compared mt druitt - one had the highest population of demographics from pacific islanders in the whole of brisbane (which are the lowest income percentage wise) where else when in Mt Druitt, the restaurants, vibe and i even saw lion dance which signfies the business wealth. it is also better to put the brakes on asian buyers as if it goes out of control it will only create a state where the median does not reflect the actual income earners within the state which is happening in vancouver now.

 

Certain areas/precincts are targeted by foreign investors in particular areas with good schools etc and we have seen these areas skyrocket in recent times. Bentleigh, Melb, the McKinnon School precinct is high sort after and this suburb will continue to go from strength to strength on this factor alone.

Back to the article - apartments, I was watching a show last night and basically stating that developers need to stop building apartments because there is already a massive oversupply across Australia. I am sure we will see some pain in the very near future.

MTR

 

yup the top 3 asian shcools - balwyn HS , glen w HS , and mackinnon HS. There is a massive oversupply in the suburb of southbank that is for sure. Even now more and more are building.

 

dont know if the market size of chinese apartment money is decreasing overall or if its shifting from one city to another. Will be interesting to see stats on that ( not sure where to get it)...ie total expenditure of chinese money on apartments and share of wallet per city...especially if its qtr to wqtr or some trend based.

 

not sure either, would be interesting to view these stats as well

Either way that foreign buyers are dropping off like flies.

The major impact will be apartments, in Perth we have a major glut of apartments its killing the end values, however developers are still building. Its also killing the rental market, people have choices

 

The problem is that one near CDB site can provide an exponential increase in supply, providing hundreds of new apartments on a site where once stood an old house.
Hopefully development applications for these will slow down otherwise there will be a lot of pain for those buying OTP in SYD, MEL and BN with the surrounding rental markets collateral damage.
A relative of mine is keen to buy in the BN CBD and get out of suburbia but I keep telling him to hold off for 18 months or just rent out his current place and rent in the CBD.

 

Like all other markets, for example computer games, developers are still producing because people are continuing to buy. Must feel great to be a renter.

 

interesting theory - with chinese money shifting city to city but it is hard to fathom on the basis of the movement. With any investment, shares, gold, property, yes it is good to have technical analysis (stats etc) and fundamental analysis (news, etc).

I think it would be quite hard to gather stats on movement of chinese money. Any figures generated would not be presentative of race. Will any transfer have a category of "race" or would it purely be on names. Really who are the chinese are most people referring to ? as indonesian and thai chinese (like the ex-PM yingluck) are also chinese but have arabic names and thai names. With restrictions on transfers making it harder - it will come down to education sector to get the chinese money as it is the easiest way to get money out.

My verdict is "no inevitable boom" in any cities in the coming year. Overall supply of Apartments who expect to sell to asians esp cities with minimal education sector to sell to will be harder and may even create certain mini busts.

 

does not mean developers will make money, some lose money, especially when there is an oversupply which means too much stock and not enough buyers. 80% developers go broke? read this somewhere, being a small time developer myself I can certainly understand why this happens, we are at the mercy of markets.

 

I disagree. I Brisbane, the sky is blue and the grass is green. Verdict: Boom Inevitable

 

Hehe.
Maybe only in one particular city.

 

Haha Ok all the best with that.happy to be proven wrong. from your inevitable boom predictions it should be 25% capital growth by June next year? grass must be really green in brisbane .

 

I take this article by Robert Gottliebsen with a grain of salt. His willingness to be the mouthpiece for Harry Triguboff every time he writes about property gives him a very biased and narrow view of the property market. Of course Australia isn’t just Sydney/Melbourne OTP apartments...

His knowledge about Chinese buyers appears to be rather superficial, probably based on second hand reading and third party commentary.

As a close observer of Chinese buying I know for a fact that this is a complex area with conflicting and ever changing signals. For example the difficulty to transfer money out of China has been, I think, greatly exaggerated. Most people can still get their money out if they want to but with some delay. And if they can’t, as I have seen time and time again, many would still be able to make arrangements with relatives/friends living in country.

Secondly, the effect of foreign buyer restrictions in Australia could well be offset by the increased demand resulting from upcoming changes in student visas. From 1st July schoolkids as young as 6 as well as their guardians can get these visas. I know several Chinese families actively planning to send their primary school kids here because, all things considered, they believe education in Australia to be cheaper and better than in China. When they come here with their guardians they’ll want proper housing, not just the slums that some of the current crop of uni students put up with.

Gottliebsen recently became a fierce opponent of the Coalition super reforms and this has also blinded his views. For example when he writes that a surge in OTP apartments in the last few weeks has been partly caused by these reforms, he forgets that they were just announced a month ago and would have barely had any effect on the market.

Fluctuations yes, but no new era in residential market.

 

I think i will watch China's OWN property market with interest.....

 

Sky is cloudy, grass is brown from the rain/floods.
Verdict: apart from the missing roofs in Moorooka, a couple of weeks of sun should continue the current slower-than-Sydney-boom-but-bigger-than-average increase.

 

In Hk, many Chinese nationals use insurance companies with huge rebates to get money out. Amazing the tricks the industry comes up with. Perhaps it could be a new boom area for Aus if they knew about it.

 

Haha most of my friends have sold in past 3 months. They're all pretty worried about it after it's doubled.

 

This is gunna come across as a racist slur, of course ... (but it is not)...

Why would we not have in place a scheme where any new builds of Resi (and Comm) are only open to Citizens of Aus first, and if there is no interest by a certain date, then open it up to O/S buyers...

Personally; I don't think we should have any O/S ownership of land and/or buildings in Aus - only Citizen ownership, but with 30/60/90 year leases etc to O/S investors or businesses for the use and construction on that land.

 

Saying bad things (even if its the truth) about brisbane is against the rules of this forum
..and it could also be bad for your health...let me know when you fly into brisbane and ill have my 'welcome party' greet you at the airport. .specifically the airport parking lot..