Clamping Down on Foreign Buyers Could Affect Property Market

By Peter Sarmas on 1 May 2016
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Melbourne Auction Results 30th April 2016

76%
Clearance
Rate

1137
Reported
Auctions

Sold at Auction: 869    
Passed in: 268  

 

Sold Before: 107    
Sold After: 3    
     

 

 

 

A clearance rate of 76 per cent was recorded this weekend compared to 75 per cent last weekend and 79 per cent this weekend last year. There were 1137 auctions reported to the REIV, with 869 selling and 268 being passed in, 126 of those on a vendor bid. The clearance rate for the month of April is 78 per cent, up seven per cent on the same period last year. Mount Waverley and Glen Waverley lead the auction sales in April with 27 and 26 sales respectively.

Certainly a strong weekend for auctions with over a thousand properties going under the hammer and the clerance rate above the mid 70 percent mark. Altough this a very positive sign for the Melbourne property market, we also need to remember that strong auction suburbs are correlated and linked to strong demand for property. Approximately 30 percent of properties sold in Melbourne are auctioned, while the remainedr 70 per cent are sold privately.

 

 

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Photo Source: Istock

 

Clamping Down on Foreign Buyers

Some big and I believe very influential news release last week will surely have ramifications on the real estate market in Melbourne and Australia.

Firstly the news, poor inflation figures released last week caught many economists by surprise. Australia saw deflation (March quarter) for the first time in seven years when the consumer price index (CPI) contracted by 0.2%. Much of the fall in prices was due to lower food, petrol and clothing prices.

Economists believe the Reserve Bank could now be forced to cut interest rates when they next meet this Tuesday afternoon. Chances of an interest rate cut have risen to 60% while Sportsbet have betting odds at $1.20 for a cut versus $4.20 if interest rates go up.

Will this mean lower mortgage rates? Don’t hold your breath. As I have pointed out in my previous articles, new regulations enforced to protect our banking system will mean the big four banks will either pocket the difference if there is a rate cut or increase rates especially to investors, out of cycle.

The second interesting bit of news this week was the big hit to foreign buyers. Not sure whether some of these new regulations are politically motivated but it seems the timing of this clamping down on lending to foreign buyers and the impending election on July 2nd seems very coincidental.  Throw in the mix the blocking of the sale of Kidman Station by Treasurer Morrison to the Chinese, some 1% of Australia’s landholding and it seems we have thumbed our nose to to foreigners supporting our nation.

Anyway back to tougher regulations for foreign buyers. Last week Westpac followed it’s rivals ANZ and CBA in restricting lending to foreign buyers for the purchase of Australian property.

The decision will see Westpac refuse all mortgage applications from nonresidents, temporary visa holders living overseas as well as those with foreign self-employed income.

The crackdown follows pressure from regulators and similar actions from CBA and ANZ in recent weeks. The Westpac move also comes on the back of concerns from the RBA over the impact of foreign buyers on the property market.

“It still only accounts for a small fraction of overall market activity,” the RBA said earlier this month. “Nonetheless, if a significant subset of ­buyers reduce their demand sharply, this can weigh on housing prices … that could weigh on domestic property prices and so lead to losses on the banks’ broader property-related exposures.”

On the one hand we have an oversupply of apartments in Melbourne with about 42,000 apartments to be completed by 2019, while on the other hand we have non-resident foreign buyers being hamstrung with finance. Taking away one of the main drivers for OTP apartment sales doesn’t make much sense to me. Economically it will cost jobs and our property sector will become vulnerable. Perhaps that’s why both the federal and state governments are looking at infrastrucre spending to make up some of the jobs expected to be lost in construction over the coming few years.

To make matters worse the Victorian state government announced it will increase stamp duty for foreign buyers from 3% to 7% for all property bought after 1 July this year.

The government will also increase the land tax surcharge for foreign buyers from 0.5% to 1.5% from the 2017 land tax year.

“No Victorians will pay these surcharges,” said Treasurer Tim Pallas. 

“It’s only fair that foreign buyers of residential real estate, who enjoy the capital growth as a result of Victoria’s liveability and the amenity of our cities, contribute to the maintenance of government services and infrastructure,” he said.

The land tax surcharge has been in place for nearly 12 months, and has had no noticeable impact on foreign demand for Victorian real estate.

 

Looking Forward this Year

It certainly looks like stock levels have increased the second half of April however it appears we are down when compared to last year for the same time in certain suburbs. Word has it that a major real estate franchise group in Melbourne has reported stock levels down 20-30 per cent than for the same time last year. However in Melbourne’s outer suburbs there is a different story. Suburbs like Melton, Craigieburn, Pakenham and Doreen have stock levels in the hundreds of homes.

For those looking at selling in the next six months, we’re advising all our clients to bring their sale forward as fast as possible.

Looking at the results for past 3 years for the months of November and December, there have been a flood of listings come on resulting in prices falling between 7-10% in Melbourne. While at the same time, current sale results in April and May have been strong, reflective of the 75% plus auction clearance rate seen the past few weeks.

If you have however missed the boat for May and are worried about selling in winter, there is one more opportunity to sell before the AFL finals and Spring, that’s in August.

 

Strong Sold Price for our Client at 118 Bridge St, Eltham

Just how strong the current market is can only be reflected by the huge result we achieved for our client Henty and her son Karl.

Henty had the made the decision to downsize into a retirement village situated closer to her son Karl. The challenge we faced when we were called in to act as their vendor advocate was the timeframe. You see Henty had already committed to a purchase and was due to settle in less than 70 days, we had to get a move on.

First things first, we reviewed and advised an how much to declutter her Eltham home then (at no cost) asked our interior designer to give us her opinion on what else was needed. Although we didn’t go down the path of styling, the property was presented in such a way to make it look spacious and immediately liveable.

We then invited the most active agents in the area and spent an hour interviewing each one, asking key questions with the owner to decide which agent would be most suitable.

Once the decision was made on the agent we swiftly moved to sign the selling authority and book all the advertising, board, photography and copy. We chose the auction date allowing for Henty’s settlement time then worked backwards for our start date.

The home was in a sought after part of Eltham and had a number of uses so the buyer enquiry was good. Within the first week we were already seeing 15 groups through each open house and buyers expressing serious interest.

Priced at $650- 700,000 the number of interested buyers grew to 7 by auction day. Although we expected a good result on the day, we were also prepared for the worst. Turns out we needn’t have worried.

The bidding opened strongly at $650,000 and quickly sailed past $700,000 in $10,000 increments. At $720,000 I went inside and confirmed with the vendor to put the property on the market, at this point they were happy to sell if there were no further bids.

The auction then took off to another level with all four bidders pushing the price all the way to $745,000. Then a new bidder who had just turned up on the day began bidding fiercely. It was back and forth fighting for the ownership, one bidder trying to knock out the other until the bidding finally stopped reaching the massive price of $850,000, $150,000 over the reserve price.

The crowd and everyone involved in trhe sale were stunned at the result. Henty and her son Karl were thrilled, it now meant she had enough money left over to live comfortably and even fly to England to see her relatives, business class. Oh and the settlement? We managed to get the same day she initially requested.

All in all a great outcome!

 

What our Clients Are Saying?

We would like to thank you for all your hard work, your advice and your attention helping us to secure an excellent investment property.  Being first time investors, you were happy to spend time with us explaining how it all works and always happy to answer our many questions. You sorted through lots of properties according to our brief to finally secure a fantastic place in a great location and at an excellent price. You made negotiating with the vendor’s agent a breeze and your knowledge of the industry and players was a huge advantage.  All in all, we are so glad we had you as our advocate for this purchase and we hope that we can work with you again in the future. Peter and Jenny.

Thinking of buying or selling a home?

Visit our Street Advocate website or send an enquiry below or just call

Peter Sarmas on 0418 740 606.

 

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For a basic snapshot of your suburb’s performance or a property report customised for your property, request a Free Market Report.

If you are thinking of buying, selling or investing and would like a FREE 5 minute chat with Street News Director Peter Sarmas, please contact him on 0418 740 606 
or via email at [email protected]

About the Author

Peter Sarmas is a Certified Property Investment Advisor (PIAA) and Vendor/Buyer Advocate. Before becoming the founder of Street News, Peter completed a Degree in Applied Science (Chemistry) and a Graduate Diploma in Property Valuations (Hons). Peter believes property investing is a major and potentially risky undertaking. In his view, everyone should have an independent person acting on their behalf when seeking property investment advice.

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