Sydney rents remain at record peak as demand builds up
Michael Bleby
582 words
16 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Sydney rental prices held at their highest-ever levels in the first quarter as soaring residential investment failed to dent the city's pent-up demand for housing.
The median asking rent for a house in the NSW capital was a record $520 a week in the first quarter, unchanged from December and up from $500 a year ago, the latest Domain Group Rental Report shows.
The country's biggest-ever housing boom is led by Sydney, which is trying to overcome a decade of under-investment in housing. Soaring prices are raising concerns about affordability and overheating in the housing market - dwelling values in Sydney rose 13.5 per cent over the past 12 months, CoreLogic RP Data figures show - but the fact that rents were keeping up with prices meant there was little reason for the Reserve Bank to raise interest rates, said Domain Group senior economist Andrew Wilson.
"There are no signs that the investment market is overheating the Sydney market," Dr Wilson said. "Prices are growing, but rents are at least holding at record levels."
The strongest rental growth for the quarter came in Hobart, where the median asking rent for a house rose 3.7 per cent to $330 from $320 and to $280 from $270 for an apartment. Melbourne rents rose to their highest-ever $390 for a house and $365 for an apartment, the report by Fairfax-owned Domain says.
Anna Rorke has held the rent of her three-bedroom investment home in Sydney's Rozelle constant at $850 for the past three years. Despite her property agent's urgings, Ms Rorke is unwilling to give her tenant a rent review.
"If she moved, I don't think I'd get more money," she said.
Rental yields - the measure of rental income as a proportion of purchase price - have declined in most cities over the past year. In Sydney they have been below the 4 per cent mark for the past two quarters, but they were still above the 3 per cent of a decade ago, Dr Wilson said.
"There is no doubt that prices are rising faster than rents at the moment," he said. "They're pushing yields down."
Ms Rorke says she is prepared to accept the after-inflation decline in rent because of the $700,000-odd capital gain she has made over the past decade. "It's probably worth about $1.25 million," she says. She purchased it for about $540,000 10 years ago.
That level of growth still made Sydney investors happy to take losses on their properties, said Rich Harvey, who is the managing director of buyers' agency PropertyBuyer and Ms Rorke's employer.
"That will generally overshadow any losses they make over the short term," he said.
Perth and Darwin have seen asking rents tumble.
While the median asking rental price of houses in Perth was unchanged in the March quarter from December at $450, it has dropped from $475 a year ago.
Unit asking rents dipped to $385 from $390 in December and are down 3.8 per cent on the $400 figure of a year ago.
However, the market is keeping broadly in equilibrium, with gross rental yields on houses slipping only to 4.56 per cent from 4.66 per cent in March last year.
It was a similar situation in Darwin, where the decline in rents was even more marked.
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Document AFNR000020150415eb4g00014
Goldman tips housing surplus by 2017 as growth slows
Robert Harley
430 words
17 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Australia will have a housing surplus by 2017, says one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey.
The challenge from 2017 onwards, he writes, will be to "normalise interest rates" - in other words raise interest rates - just as underlying housing demand is weakening.
Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, said that in markets with significant excess supply, prices could fall 5-10 per cent.
The new Goldman Sachs report, one of the first to question the population assumptions behind the housing boom, notes that population growth is slowing. By the end of 2017, Australia will have 530,000 fewer people than is estimated by the widely-used Australian Bureau of Statistics Series B projections.
The birth rate is at a historic low, deaths are at historic highs and net migration is "falling fast", so that instead of population growth of 1.7-1.8 per cent a year in 2015-17, Mr Toohey estimates the growth will more likely be 1.25 per cent a year.
The slowdown in population growth will have an effect on economic growth, with Goldman Sachs revising potential economic growth in 2015-17 down from 2.9 per cent to 2.5 per cent.
And it will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.
Other analysts have also forecast a slowdown in population growth, though less starkly than Goldman Sachs. In a February note, Bank of America Merrill Lynch economist Alex Joiner forecast that as migration slowed, population growth would decelerate from 1.6 per cent a year to 1.4 per cent.
The slowdown would, "at the margin" reduce housing demand. "By mid-2015 the construction cycle will likely have peaked in any case, with the only question being as the rate of its decline," BAML wrote.
BIS Shrapnel's Mr Mellor said Goldman Sachs was being overly pessimistic on migration. He estimates net migration will bottom out at 2016-17 at 150,000 compared 235,000 in 2012-13.
"The story is right but they might be overstating the downturn, with rising levels of overseas students, and rising numbers of holiday visas offsetting the weakness in working visas and the return home of the New Zealanders," he said.
BIS Shapnel is no longer pointing to undersupply in many metropolitan markets.
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Document AFNR000020150416eb4h0000l
Brisbane, Melbourne apartments vulnerable
Housing Samantha Hutchinson
678 words
18 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Apartments close to the city are the most likely to succumb to price falls if population growth comes in below expectations in the next three years.
"Population growth seems to be decelerating," Merrill Lynch economist Alex Joiner said.
"And in housing, there's record numbers of dwelling starts and what we're concerned about is that there are pockets of oversupply."
Apartments in areas of Melbourne and Brisbane are most at risk of price falls, Mr Joiner said. More than 90 per cent of residential building approvals in the past year have been for apartments rather than free-standing houses.
"Its the supply overhang we're worried about," he said. "Apartments are smaller, there's a lot more of them, and vacancy rates are already starting to rise in some areas, when we haven't even seen the most of the approved stock built yet."
Mr Joiner's comments join a growing chorus arguing that ABS estimates for population growth have overshot the mark, and will come in far weaker than is estimated in its Series B projections for 2017.
Goldman Sachs economist Tim Toohey estimates that Australia will have 530,000 fewer people than is estimated by the ABS by 2017, resulting in a surplus of around 75,000 homes.
The birth rate is a historic lows, the death rate is at historic highs and net migration is falling away, Mr Toohey argues, so population growth is more likely to fall around 1.25 per cent a year for the next three years, compared to the ABS estimates of 1.7 to 1.8 per cent a year.
Mr Joiner believes population growth is likely to average around 1.5 per cent a year for the next three years, driven by softer inbound migration levels, particularly from New Zealand.
Once a primary source of professional migrants, the number of New Zealand citizens migrating to Australia have more than halved in the last two years to 22,800 in the twelve months to February 2015 year from 47,400 in the twelve months to February 2013.
Interstate migration to Sydney means prices in the country's most populous city are likely to hold strong, Mr Joiner said, but surging construction levels in Melbourne suburbs and pockets of Brisbane means the two cities could be prone to oversupply.
Australian National University demographer Professor Peter McDonald argues the two economists have overstated the trend of falling migration levels.
"There's not going to be any great change in the birth and death rates over a three year period, and so they must be talking about a substantial drop in migration," he said.
"And if you're dropping your estimates to 1.25 per cent, that means migration is going to be half of what it is now, and I can't see that happening at all."
Net migration is driven in the longer run by government programs, and he is doubtful the migrant intake would be cut in half. But he agrees that inner city apartments are the segment to be most affected in the event of sustained falls in migration numbers.
Demand in the centre of the city is driven by temporary migrants such as those on working holidays, international students and overseas professionals, whereas freestanding homes further out of the city are more likely to be purchased by local residents.
"There's a pattern where as children have grown up, they've tended to move a little bit further out than their parents, and that preference is still there driving demand on the fringe," he said.
But new migration policies will kick into gear before population growth slows below the ABS forecasts, he said.
Australia is also about to see the effect of a new migration policy allowing international students at Australian universities to remain in the country for two to four years after graduation. "It will have a sizeable impact on population, and that affects a particular segment of the housing market," he said, referring to inner city apartments.
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Document AFNR000020150417eb4i0000e
Foreign property buyers offered way to flout rules
Nick Lenaghan
547 words
14 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
An Australian lawyer has established a property scheme in Singapore to help foreign buyers skirt investment rules which prevent non-residents acquiring existing Australian real estate.
The Australian Investments and Migration Service was patented by lawyer Dominique Grubisa last November as the federal government was preparing for a crackdown on illegally owned residential real estate.
The scheme has prompted a fresh warning on illegal ownership from Liberal MP Kelly O'Dwyer, who headed a parliamentary inquiry into foreign investment in residential real estate.
"Companies that claim they can circumvent the rules are simply not telling the truth," she said.
Already one Chinese billionaire developer, Xu Jiayin, has been ordered to sell a $39 million Point Piper home after it was considered to have been acquired illegally.
Ms Grubisa said she has marketed her investment model in Singapore, Hong Kong and China. Her website explains to would-be buyers how non-residents are prohibited from acquiring properties which are not new in Australia.
"This is a legal structure that enables you to legally buy any property in Australia so as not to breach the Foreign Investments and Takeovers Act," it says.
"Once the legal structure is set up for you, it will allow you to buy unlimited properties within the Australian market. With our support, you will be free to source and purchase your own properties."
The AIM website tells investors that Australian developers "tend to overprice new stock to be sold overseas", with prices inflated by as much as 50 per cent above their market value.
"The AIM process allows you to sidestep this issue," it says.
Contacted by The Australian Financial Review, Ms Grubisa said her model had yet to attract any clients but she was adamant it complied with foreign investment rules.
The structure involves establishing a buying entity which complies with Australian law. That entity then buys a property using funds from the offshore investor, who becomes a secured creditor on the property title.
"There is no bar to a foreigner lending money to an Australian company," Ms Grubisa said.
However lawyer David Colenso, a real estate partner at Johnson Winter and Slattery, was sceptical, noting that the Foreign Acquisitions and Takeovers Act, which governs investment urban land, has strict anti-avoidance provisions.
The legislation distinguishes between land held as security for a loan and arrangements which effectively allow a corporation to be controlled by a foreign investor. "The legislation is designed to stop foreign persons acquiring the land or acquiring the vehicle that owns the land or controlling the vehicle that owns the land," he said.
"If there is any arrangement where the foreigner can direct control of the company, then that is prohibited under the Act. These types of schemes and arrangements have been considered when they drafted the legislation. That's why they put the anti-avoidance provisions in there.
"It's not safe, it's not bullet-proof and it's completely susceptible to an FIRB divestiture. The person who lent the money could find themselves out in the cold." Real estate agents and whistleblowers in the property market have warned that non-residents are using trust structures and other methods to slip past Australia's foreign investment regime.
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Document AFNR000020150413eb4e0000l
The mother of all housing bubbles?
Christopher Joye - Christopher Joye is a leading economist and director of Smarter Money Investments.
804 words
17 Apr 2015
Financial Review Smart Investor
FRSINV
English
Copyright 2015. Fairfax Media Management Pty Limited.
OPINION
The key lessons from the GFC were to speculate less and invest in the real economy but Australia is seemingly headed in the opposite direction, writes Christopher Joye.
The Reserve Bank’s governor Glenn Stevens is trying to unravel a Gordian knot created by his institution’s inconsistencies. The RBA is blowing the mother of all housing bubbles to defl ate an overvalued exchange rate. It is replacing one asset pricing conundrum with another, arguably more dangerous, one.
The RBA has introduced unprecedented monetary policy settings in the form of the cheapest borrowing rates in history to put downward pressure on the Aussie dollar.
Relative to the greenback and our key trading partners’ currencies, the exchange rate is well above the RBA’s estimate of fair value, which is about US70¢.
When the RBA cut rates in February it judged the housing market to be cooling.
Much like it thought rate cuts in 2013 would not fuel an unsustainable housing boom that would force regulators to introduce macroprudential rules to slow credit growth running at three times the rate of incomes. On all counts the RBA’s forecasts have been wrong.
It has probably been blindsided by housing dynamics over the past couple of years as it has never confronted these conditions. In 1991 the value of housing debt divided by disposable household income was 35 per cent. Today it is more than 140 per cent, and climbing daily. Australia has never had to contend with home loan rates of less than 4.3 per cent. And home buyers have never seen more expensive house prices, either in absolute terms or compared to their incomes.
The bad news for the RBA is the asset class is heating up again, with national house prices infl ating at about 12 per cent annualised over the three months to March 25.
With so much more leverage in the household sector, small changes in interest rates can have a bigger impact on participants’ behaviour. However, the exact size of this sensitivity is hard for the RBA to anticipate because it is in uncharted waters.
It has never had to deal with a cash rate as low as 2.25 per cent.
The RBA has been explicit in admitting it is already an active combatant in the global “currency wars”, declaring it is battling the overvalued Aussie dollar by crushing interest rates. The problem is that this is a very blunt tool which is infl icting far-reaching collateral damage by infl ating asset-price bubbles across interest rate-elastic areas of the economy and forcing retirees to assume untenable capital risks that could decimate their future living standards.
It is not clear that borrowers – especially the record 40 per cent taking “interest-only” loans – will be able to service the repayments in an infl ationary world. We’re talking mortgage rates at more than 8 per cent –a touch higher than their average level since 1993.
So one crucial question is why the RBA is not using its formidable balance-sheet powers to lean against, or actively sell, the exchange rate, as it has done in the past?
The RBA’s reluctance to tackle these distortions is ironic, given its two most senior leaders – Stevens and Phil Lowe – made their policy bones advocating that central banks should “lean against” asset prices that were far removed from fundamental values if they threatened the economy’s overall wellbeing.
The Aussie dollar falls into this camp. Indeed, that has been the RBA’s offi cial assessment.
Lowe and Stevens made this case in the context of their critique of the US Federal Reserve, which they suggested contributed to a house price bubble by leaving rates too low for too long before 2007. The worry is the Aussie house price bubble today is much bigger than its US equivalent before the GFC.
Australia does not need cheaper money – it would be detrimental to long-term productivity. The lesson from the GFC was that we needed to take on less leverage and redirect scarce resources away from overvalued banks and homes into real-world businesses that contribute to productivity. In Australia, we have done the opposite.
I pay heed to the RBA’s Guy Debelle, who, in October, said he found it “somewhat surprising that the market (in aggregate at least) is willing to accept the central banks at their word and not think so much for themselves”.
Put differently, the central bankers’ BS is not likely to last. There will eventually be a reckoning when freely functioning fi nancial markets reassert themselves at radically different prices. No one knows when, but it will happen. And you’ve been warned.
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Document FRSINV0020150416eb4h0000a
Foreign property buyers in Australia face sweeping crackdown
THE AUSTRALIAN MAY 02, 2015 12:00AM
Joe Kelly
Political reporter
Canberra
Hit on foreign property buyers
Prime Minister Tony Abbott with Agriculture Minister Barnaby Joyce in parliament. Picture: Gary Ramage Source: News Corp Australia
Tony Abbott has today unveiled a sweeping crackdown on foreign property buyers, including fees to acquire real estate and tough new civil and criminal penalties for investors who knowingly break the rules.
Real estate agents and others who assist in breaches of the laws, to apply from December 1, will for the first time face fines, while large-scale agricultural and business acquisitions will be hit with fees as high as $100,000.
The Prime Minister has pledged to enforce the new arrangements, with penalties of three years’ jail and fines of $127,500 for individuals and $637,500 for companies.
Foreigners will also be prevented from making a profit on the forced sale of illegally purchased properties and be hit with penalties of 10 per cent of the purchase price.
Temporary residents who break the rules will face fines of about 25 per cent. Third parties who wrongly assist foreign investors will face fines of up to $42,500 for individuals and $212,500 for companies.
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The tax office will be given responsibility for enforcing the new foreign investment rules on residential real estate and will use its data-matching systems to catch out wrongdoers.
A doubling in overseas investment in residential real estate to $34 billion from 2012-13 to 2013-14 has sparked parliamentary inquiries, amid claims of heavy buying in some suburbs by Asian investors.
Mr Abbott is framing today’s announcement as part of a drive to reduce the upward pressure on housing prices.
“Part of the Australian dream is to own your own home and I want that dream to continue,” the Prime Minister said.
“I know from personal experience how tough it is to get into the housing market. I’m determined to crack down on any illegal activity that could be putting upward pressure on property prices. We want the rules enforced and we want Australians to be operating on a level playing field.”
From December 1, a $5000 fee will apply to foreign investment in residential properties valued at $1m or less.
According to the Foreign Investment Review Board annual report for 2013-14, the average price for residential properties valued at less than $1m and purchased by foreign interests was about $550,000.
The $5000 fee will increase prices by nearly 1 per cent and would have delivered a yield of close to $100m alone in 2013-14.
Properties worth more than $1m will incur a larger $10,000 fee and attract a further $10,000 fee for every additional million in value after that.
Finance Minister Mathias Cormann said foreign investment was very important and Australia remained open for business.
‘We also understand that it is very important that the public can have confidence that the foreign investment coming into Australia is not contrary to our national interest, which is why we do have to have a framework in place that applies proper scrutiny,’ he told Sky News.
The move is likely to draw strong criticism from many quarters. Property Council chief executive Ken Morrison recently warned against the imposition of “unwarranted big new fees”.
He said foreign investment helped to expand housing supply and was putting downward pressure on prices.
Mr Morrison said Treasury estimates on foreign investment in off-the-plan residential developments showed 65 per cent of units in major apartment complexes were usually bought by Australians while only 35 per cent went to foreigners.
Mr Abbott said the changes were not aimed at stopping overseas investment. “Foreign investment has been very, very good for Australia but it’s got to be the right foreign investment under the right circumstances, properly policed and it can’t disadvantage Australian home buyers,” he said.
Agriculture Minister Barnaby Joyce and the Nationals have clinched a victory with a new $55m threshold for scrutiny of agriculture investments to apply not just to primary production but to a wider range of agribusinesses such as seafood, meat, diary, fruit and vegetable processors.
However, the threshold will remain at just under $1.1bn for private investment from the US, New Zealand and Chile.
Investment in agribusinesses will be more exposed with investors being hit with a $25,000 fee if their investment meets the lower FIRB screening threshold of $55m. They too will also face a $100,000 impost if the value of the transaction is greater than $1bn as was the case with the unsuccessful bid for GrainCorp from US company Archer Daniels Midland in 2013.
Agricultural land valued at more than $1m will attract a $10,000 fee and a further $10,000 fee for every additional million in value after that.
The additional costs will be capped at $100,000. Fees of $25,000 will apply to acquisitions in “sensitive” sectors including telecommunications, transport, defence and media if they meet the FIRB screening threshold of $252m. The fee will rise to $100,000 if the transaction is greater than $1bn.
The screening threshold for non-sensitive business acquisitions applying to free trade partner countries will remain at its current level of $1.1bn, although the same fees will apply.
Labor frontbencher Stephen Jones said the government was declaring Australia open for business and in the next breath saying ‘but let’s check your passport’.
‘We will have differential arrangements for different countries. The government needs to send clear messages about foreign investment. We think it’s important,’ he told Sky.
Foreign investors illegally buying Australian properties to face new penalties of jail terms, fines
[Under the changes, foreign buyers who breach the rules will face three years in jail and fines of $127,500 for individuals and $637,500 for companies.]
[But Treasurer Joe Hockey said investors can avoid prosecution if they come forward by November 30.
"I say to foreign investors, you have until the end of the year to declare yourselves," he said.
"If you do not come to us, we will come to you because eventually we will find those people that have engaged in unlawful acquisition of Australian real estate and we will prosecute you and we will be very hard about it."]
[Mr Hockey said since issuing a "divestment order" on a Sydney property that had been illegally purchased, a number of other buyers had come forward.
"We are
investigating a further 100 cases at the moment. For example, one case in WA involving a property of around $800,000, the foreign investor has come forward, self-identified," he said. "They will be forced to sell their properties but they will not be subject to criminal prosecution by the Commonwealth Government but they will need to sell their properties."
The Treasurer said the foreign investment rules would now be enforced by the Australian Tax Office rather than the Foreign Investment Review Board because the ATO had access to state and federal data, including immigration records.
The Government has also confirmed it will push ahead with plans to impose a $5,000 fee on all foreign investment applications for residential properties valued up to $1 million. ]
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Good move by the Aus gov. to collect stamp duty from first sale, then now force sale collect some more stamp duty, raise quick revenue for gov. at the same time possibly tame/cool the property market, free up housing stock and make the local people happy to vote for them.
(02-05-2015, 07:12 PM)BlueKelah Wrote: [ -> ]Foreign investors illegally buying Australian properties to face new penalties of jail terms, fines
[Under the changes, foreign buyers who breach the rules will face three years in jail and fines of $127,500 for individuals and $637,500 for companies.]
[But Treasurer Joe Hockey said investors can avoid prosecution if they come forward by November 30.
"I say to foreign investors, you have until the end of the year to declare yourselves," he said.
"If you do not come to us, we will come to you because eventually we will find those people that have engaged in unlawful acquisition of Australian real estate and we will prosecute you and we will be very hard about it."]
[Mr Hockey said since issuing a "divestment order" on a Sydney property that had been illegally purchased, a number of other buyers had come forward.
"We are investigating a further 100 cases at the moment. For example, one case in WA involving a property of around $800,000, the foreign investor has come forward, self-identified," he said. "They will be forced to sell their properties but they will not be subject to criminal prosecution by the Commonwealth Government but they will need to sell their properties."
The Treasurer said the foreign investment rules would now be enforced by the Australian Tax Office rather than the Foreign Investment Review Board because the ATO had access to state and federal data, including immigration records.
The Government has also confirmed it will push ahead with plans to impose a $5,000 fee on all foreign investment applications for residential properties valued up to $1 million. ]
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Looks like the witch hunt is about to begin.
No worries mate... angmo is well known for hotair...
hot air maybe? (Already caught that super rich fellow from china and force sell his multi million dollar house.)
Point Piper mansion Villa del Mare sold now, Hockey says
[The $39 million Point Piper mansion that was illegally purchased by a Chinese company has resold to an Australian resident.
The forced sale by one of China's richest men Xu Jianyin followed a crackdown by Mr Hockey on existing foreign ownership rules.
The head of the Evergrande Real Estate Group was given 90 days on March 3 to divest the property because it was bought without approval from the Foreign Investment Review Board.]
ATO is the tax office, they have all the info to check if the china man's residency status as they link direct to immigration. Using them instead of the 8 man FIRB team is a clever move.
They can just get a list of all owners of properties from title office then cross check with the immigration permanent resident list or citizen list. If name is not there then sure kena caught. All use computer, no need much action just a few click.
There should be some panic selling soon, there are also many rich chinese students who buy property and dun sell it off when they leave and their visa expire. It's like a margin call now haha.. whether or not it affects the property market bubble there remains to be seen, this will be in turn affecting those property counter on SGX with exposure to AU market
That is probably your wishful thinking. Your China crash scenario has turned into a boom town story...
Aussie Fed elections is next yr. Political consters need to be seen to be doing something so that fellow citizens feel that they are being looked after.
Anyway, no govt will deliberately engineer a crash landing in an economy - there is nothing to gain from deflation as modern day economics has clearly demonstrated so far.
(02-05-2015, 07:45 PM)BlueKelah Wrote: [ -> ]hot air maybe? (Already caught that super rich fellow from china and force sell his multi million dollar house.)
Point Piper mansion Villa del Mare sold now, Hockey says
[The $39 million Point Piper mansion that was illegally purchased by a Chinese company has resold to an Australian resident.
The forced sale by one of China's richest men Xu Jianyin followed a crackdown by Mr Hockey on existing foreign ownership rules.
The head of the Evergrande Real Estate Group was given 90 days on March 3 to divest the property because it was bought without approval from the Foreign Investment Review Board.]
ATO is the tax office, they have all the info to check if the china man's residency status as they link direct to immigration. Using them instead of the 8 man FIRB team is a clever move.
They can just get a list of all owners of properties from title office then cross check with the immigration permanent resident list or citizen list. If name is not there then sure kena caught. All use computer, no need much action just a few click.
There should be some panic selling soon, there are also many rich chinese students who buy property and dun sell it off when they leave and their visa expire. It's like a margin call now haha.. whether or not it affects the property market bubble there remains to be seen, this will be in turn affecting those property counter on SGX with exposure to AU market