Black and White Finance update - August 2017
Over the past 5 years, those lucky enough to have purchased real estate in Australia have seen their wealth improve considerably. According to the Australian Bureau of Statistics, house prices have skyrocketed by 44 percent across our capital cities since 2012. Leading economists now believe this could all change.
According to data gathered at the beginning of the year by Credit Suisse, Chinese buyers accounted for 80 percent of the property bought by foreign investors. This week, Chinese regulators formalised restrictions on outbound investments, including the purchasing of overseas real estate, which has been placed on the ‘restricted’ list.
The reason they’ve done so is to protect their banking system. These foreign Australian investments are funded by Chinese bank loans so if one of the developments goes pear shaped, it could pose serious risks to their banking regime.
Knight Frank’s recent market insight report showed that 38 percent of residential development sites were purchased by Chinese companies last year, which has led some experts to believe this ‘restriction’ by the Chinese government, will have a detrimental impact on new residential developments.
A recent UBS report showed that a quarter of Chinese foreign investors buying property overseas leave their apartments vacant after paying cash for them, while a further quarter were using their properties only on a temporary basis. This poses a problem for NSW, given the existing property supply shortage. To combat this, the 2017 Budget has hit foreign investors with an annual charge if they leave their property vacant for more than 6 months in the year. This will force these owners to rent them out or potentially discourage them from purchasing in the first place.
The government has also doubled the foreign investor surcharge from 4 to 8 percent and increased the land tax surcharge for foreign investors from 0.75 percent to 2 percent.
Experts from investment bank UBS, believe we could see a serious slowdown in the property market and that we’ve already hit the peak. With these initiatives from the Chinese, Australian and State governments, foreign investment will more than likely dip and continue to do so.
Other experts such as Realestate.com.au chief economist Nerida Conisbee, believe there will be fewer developments and less supply, making it even tougher for buyers to jump into the Sydney and Melbourne property market causing property prices to continue rising.
Our banks are tightening their lending policies, effectively making it a little harder to get your loan approved. Regulators are enforcing these changes and continue to flex their muscles, ensuring prudent lending standards are maintained. If you haven’t noticed already, bank policies continue to change and are getting tighter. Interest rates are higher for home loan investment purposes compared to the rate for owner occupied purposes. The rate is also higher if you’re making interest only repayments versus principle and interest. The changes are an attempt to ensure our borrowers pay off their home loans sooner and don’t just continue to buy investment properties making interest only repayments. In the event of a downturn, statistics show that home owners sell off their investment properties before their homes so the banks are trying to protect themselves.
With tighter banking guidelines, income levels remaining flat and living costs increasing, any further rate increases could have detrimental consequences to the economy and more specifically, to property prices. Rises in interest rates could cause some serious mortgage stress to Australian households, so it’s fair to assume that rates will remain on hold for a little while yet, which is what we’ve seen in the media recently. With current stock levels and the latest first home owner government initiatives, as long as construction continues and does not dramatically decline as some predict, first home owners should see some improvements to their purchasing statistics. The impact of the new Chinese government ‘restrictions’ will be seen in time and It's clear there will be some consequential impact given the data.
Championing these changes and how each lender can benefit our client’s different needs is how the Black and White Finance team will add value. If you want to know more about these changes, please feel free to drop us a line. We’d also like to know what you think, so please feel free to comment. Thanks so much for reading, for your support and the fact you’ve made it all the way down to here is truly appreciated.
Peter Vassilis