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Sydney Housing Market Update 15/06/2017

June 15, 2017

I hope you really enjoyed the Long Weekend as the next one is officially 106 days away. I know, depressing.

As we head into the prolonged Winter work period it will be interesting to see the effect all the State and Federal property law changes will have on the greater market and of course our little patch here in the Inner West.

Today I'll look more closely at the changes imposed on foreign buyers. I've attached two links below with more details:

http://firb.gov.au/2017/05/3333/
http://www.afr.com/real-estate/residential/nsw-doubles-foreign-home-buyers-tax-to-8pc-20170531-gwhr6w

On the whole, they appear to not be too draconian and some I think are long overdue. The main one that interests me is the reversal of the ability for 100 percent of new apartments in a single building to be sold to foreign investors back to its original amount of fifty percent.

Changed by the Rudd Government in 2007 this I believe has contributed the most to encouraging disparate prices in the new apartment market with many locals not even getting the opportunity to purchase in some developments as they were never offered to the domestic marketplace and simply sold offshore.

It also allows for dangerous lending practices as many developers require as many as 70% of the apartments in a complex to be sold off the plan before a bank will lend on the project. When all of these buyers are foreigners it can be quite difficult to ascertain their specific financial credentials as well as become a nightmare for values as the prices may not reflect the current local market.

You now have a situation where only fifty percent of the apartments in these buildings can be offered overseas leaving the developers the task of having to make up the balance required to secure finance by selling to locals. This is a far safer situation whereby realistic prices and sounder lending practices can prevail which ultimately leads to a lower risk of mass defaults and an overnight flooding of the market with stock.

The other major change this time by the State Government is in relation to the almost doubling of stamp duty paid by foreigners. In this case, I'm a little bit more circumspect with the immediate thought coming to my head of, "careful what you wish for".

I guess the main question I asked myself here was, how much foreign investment do Australians want in their domestic property markets. None, ten percent, higher?

I don't really know the answer myself but what I do know is that if you make significant changes during an extreme time you should always try to model what impact they would have once things return to normal.

For example what impact will this law have when the market slows down significantly, interest rates rise, unemployment goes up and there are far more properties available than buyers?

Time will tell but I just hope we haven't artificially introduced a metaphorical "cane toad" into our New South Wales property market.

That's it from me. Have a great weekend and I'll see you next Thursday.