The future of Australian property prices

[Quincy]

FIRB ‘failing’ to enforce rules on foreigners buying Australian homes

http://www.theaustralian.com.au/nat...australian-homes/story-fn59nm2j-1227135170289

My bolding shown in referenced article.

Hot off the press : -

http://www.abc.net.au/news/2014-11-...s-to-be-strengthened/5921518?section=business

A parliamentary committee has recommended stronger enforcement of rules around foreign property investment.

The key recommendations are:

•The collection of a fee from would be foreign property investors to fund FIRB's investigation and enforcement operations - Parliamentary Budget Office finds that a $1,500 charge would raise $158.7 million over four years;

•Civil penalties for breaches of the rules linked to the value of the property, up from a current $85,000 maximum penalty;

•Fines for any third party (such as lawyers, conveyancers, developers, real estate agents or family) who knowingly assist foreign buyers to breach the rules;

•The Government to collect any capital gains made by foreign investors who illegally purchased established residential properties;

•The introduction of a national land title register to record the citizenship and residency status of real estate buyers;

•Greater data sharing between the Immigration Department and FIRB.

 

[trainspotter]

BREAKING NEWS !!

Spoke to a mate who is a real estate agent, he said 1 in 2 contracts he signs are to international buyers......even he (who is earning a bucket load due to this) is concerned about the ramifications.

cheers

MACCA350 wrote this on the 1st December 2009 waaaaaaaaaaaaaaaaayyyyyyyyy back at post #91 on this thread.

 

[sptrawler]

I have noticed a lot more 'for lease' signs in the suburbs around my area.
I don't know if it will result in an increase in financially stressed investors. However a downturn in mining and an oversupply of rental properties looks possible in Perth.IMO

That was August.
I read today, there is a 43% increase in available rental properties, than the same time last year.

 

[trainspotter]

It would appear the "noise" is exactly just that:-

Exclusive Melbourne agency Nyko Property said the “noise” surrounding overseas investment was “wildly inaccurate”.
“Vision on our television networks of people of Asian appearance bidding at auctions and outbidding other Australians does, in our opinion, simply kindle xenophobia and is anathema to the long-term goal of Australian policymakers to further integrate our economy with Asia — the fastest-growing economic region in the world,” its submission stated.
The inquiry concluded that the industry experts were correct.
“The committee is also satisfied from the evidence received that foreign investment is not causing the market distortions that have been advocated in some quarters, particularly for first home buyers,” the final report states.
“This is because foreign investment levels are not large enough to do so overall because overseas buyers mainly operate at a different price bracket from first home buyers and buy different types of properties.

http://www.news.com.au/finance/real...-property-prices/story-fndban6l-1227154627010

 

[banco]

It would appear the "noise" is exactly just that:-



http://www.news.com.au/finance/real...-property-prices/story-fndban6l-1227154627010

Well on the one hand you have people in the real estate industry who claim that it's not a big deal but then when you propose tightening the rules on foreign ownership to them they go bat****. I think it's a case of thou doth protest too much.

 

[Uncle Festivus]

It would appear the "noise" is exactly just that:-

http://www.news.com.au/finance/real...-property-prices/story-fndban6l-1227154627010

Well I just sold a unit in Melbourne to somebody from Malaysia.

Cast the net wider to include new immigrants from Asia, particularly China, and it's clear Asian investors are 'distorting' the market.

Anyone know how the unit glut in Melbourne is going?

 

[trainspotter]

Well on the one hand you have people in the real estate industry who claim that it's not a big deal but then when you propose tightening the rules on foreign ownership to them they go bat****. I think it's a case of thou doth protest too much.

The Reserve Bank of Australia's concerns about overheating property markets are growing deeper, with the central bank declaring it is in discussions with other regulators about "further steps" to tighten bank lending standards which would reduce the amount of credit made available to buy houses.
"The composition of housing and mortgage markets is becoming unbalanced," the RBA said in its twice-yearly Financial Stability Review, released on Wednesday.
With house prices in Sydney and Melbourne continuing to gallop ahead in recent months, the central bank said bank lending standards did not appear to have eased but "a crucial question for both macroeconomic and financial stability is whether lending practices across the banking industry are conservative enough for the current combination of low interest rates, strong housing price growth and higher household indebtedness than in past decades."
The stability review highlighted a pick-up in the debt-to-income ratio of households, which is currently at a historically high level of 150 per cent. The RBA said it was currently talking to the Australian Prudential Regulation Authority and other members of the Council of Financial Regulators about "further steps that might be taken to reinforce sound lending practices, particularly for lending to investors".

Read more: http://www.smh.com.au/business/the-...home-loans-20140924-10l9eb.html#ixzz3LpSkKz3C

No need to panic Mr Mannering.

 

[waterbottle]

Read more: http://www.smh.com.au/business/the-...home-loans-20140924-10l9eb.html#ixzz3LpSkKz3C

No need to panic Mr Mannering.

Trainspotter, I don't understand your position on Australian housing. Are you saying that this debt to income ratio is okay? That foreign investment is not having an influence on house prices? That the rise will continue?

 

[sydboy007]

the below poses some interesting questions. well worth asking them of ourselves

http://www.macrobusiness.com.au/2014/12/australian-real-estate-prices-and-the-economy-we-want/

At essence the question is fairly simple and has been put to me this week as …….

‘Can Australia craft a productive economy, and generate income with a competitive exposed sector, with house prices, and the debt to support those house prices, where they currently are?’

 

[Bill M]

I don't know about any other areas of Australia other than the northern beaches area of Sydney and the Central Coast of NSW and that is where my observations are based on.

Last Month I sold a unit in Sydney. 2 years ago I got a written valuation for it and at that time it was worth around 425K. I sold that unit for 525K and I sold it in 3 weeks flat. I had several buyers through and had offers starting from 485K. As the offers were coming in I just patiently waited until the offer of 525K came up and the agent advised me that it was the top price for my unit block and that I probably should consider accepting it, I did. The buyer was an Aussie, Aussies love the Northern Beaches and will pay what it takes to get in.

Since that time I have been actively observing and looking at units around the Gosford (Central Coast) area. I have also been looking online at units in Horsnby. There is very little around and there are hoards of buyers, I am competing with them all.

The big problem is that there very little stock around, too many buyers to compete with. There are unit blocks planned for development but in most cases the projects just have not started. One block in particular was selling units off the plan over a year ago and the original building on site still hasn't been demolished yet, not an iota of progress with most of these approved developments. This only forces existing stock prices to go up.

Some more popular developments like this one in Hornsby are all sold off the plan, nothing left, click on any level in the link to view. This is the kind of apartment I would like to buy, link here: http://www.pacificpoint.com.au/Floorplans.php

Selling a property is the easy part, buying a new one of quality is the hard part. I personally think that if they could build 20,000 extra new apartments around Sydney and Gosford they will all be sold easily. There is a massive shortage, I know as I am looking right now. I ideally would like to see more projects get started and completed, we need the stock.

As for foreign buyers, no doubt they have some influence on the new stock coming onto market but I will say that for existing stock most are are Australians or permanent residents. On Saturday I bumped into some Asian groups looking and they spoke with a Dinky Di accent, just because some people look Asian doesn't mean they are not Australian citizens. They, like me, only just want to buy a decent property and it is not an easy job doing those Saturday open for inspections with the hoards.

So what does this mean for prices? It's only going to keep going up under the circumstances. Anyone have any idea why these approved projects take so very long to get started and completed? I thought there was an increase in unemployment, what's going on?

 

[trainspotter]

Trainspotter, I don't understand your position on Australian housing. Are you saying that this debt to income ratio is okay? That foreign investment is not having an influence on house prices? That the rise will continue?

My position of Australian Housing has not changed. The debt to income ratio is WAAAYYYY to high which is why the RBA is looking at ways of reducing this by talking to the Australian Prudential Regulation Authority. The RBA is also looking at restricting interest only loans as a way of regulation:-

The co-ordinated steps by regulators to put the brakes on investment property loans will pave the way for the Reserve Bank of Australia to cut interest rates, analysts say.
On Wednesday, the Australian Prudential Regulation Authority unveiled speed limits on investment property loans. The move was part of a decision by the Council of Financial Regulators, which includes the RBA, the Australian Securities and Investment Commission, and federal Treasury.
The RBA has signalled its intention to use "macro-prudential" type tools that typically place restrictions on home loans that would it allow it to cut rates without fuelling exuberant *property investment.

Read more: http://www.smh.com.au/business/curb...-cut-rates-20141211-124q1g.html#ixzz3LvEDaF4K

Foreign investment has skewiffed statistics due to the lack of reliable data. Like everything in Real Estate it is CERTAIN areas that will increase / decrease due to market forces (read foreign investors)

The rise is over. The RP Data - Rismark report shows the strongest growth in home values over the past six months has been at the more pricey end of the market at 6.8 per cent, while more affordable homes have risen 3.5 per cent over that period and been flat nationally over the last three months.

My

 

[trainspotter]

Kudos to Bill M for cranking 100k less fees is a great result. Just wondering if you have done a spread sheet on this transaction? Date purchased and all that and maybe capital gain if applicable?

Developers need risk ratio and banks need deposits and binding contracts to make the contract work. Also council / shires need time to think about it.

Unemployment is going to bite hard in March on the Guvmint purse strings. RBA will continue to make noise to APRA who will restrict interest only loans. Mortgage Insurance companies will tighten guidelines. Business as usual.

 

[Bill M]

Kudos to Bill M for cranking 100k less fees is a great result. Just wondering if you have done a spread sheet on this transaction? Date purchased and all that and maybe capital gain if applicable?

Thanks for asking. I don't do spread sheets as such, I wouldn't know how but I have all the figures in my head. I know what it cost me, what I net sold for and the rentals received.

The whole point of stating the 100K part was that at that time a lot well known people on this forum were calling a housing crash, it didn't happen and still hasn't. Had I have listened to these people I wouldn't have made the money I did.

But to be honest the unit was a mediocre return at best.
Bought the the property in 2003 for 390K all in including all costs.
Sold the property in October 2014 net profit after all expenses 510K. That gave me a clear capital gain of 120K. I bought the unit brand new and paid more than I would have for existing stock, that's why the capital gain is only mediocre.

During that period of ownership I lived in it for 7 years (that part will be capital gains tax free). Street market value rental would have been $400 p/w. The tenant paid $430 p/w in the last 5 years of ownership.

Capital gains net 120K
Rent I didn't have to pay for 7 years (no mortgage) 145K
Rent received from tenant for nearly 4.5 years was around 100K (no mortgage)

Then there were expenses that need to come out of that, levies, water, insurance, rates etc. As a mate of mine said, it's not that great a return but it's better than losing and you lived in it for free for 7 years.

I reiterate, the last 2 years is where it jumped the most, I had no intention of selling when all the doom and gloomsters were saying the market was going to crash. But then again I never do or think like the herd anyway, just the way I am.

 

[sydboy007]

perth and darwin investors must be hurting with those kind of rental falls

 

[trainspotter]

I reiterate, the last 2 years is where it jumped the most, I had no intention of selling when all the doom and gloomsters were saying the market was going to crash. But then again I never do or think like the herd anyway, just the way I am.

Perfect Bill M

 

[sydboy007]

quite an interesting article. gives a good historical contex to current prices

http://www.macrobusiness.com.au/2014/12/the-history-of-australian-property-values-redux-2/

Since 2000, almost all mortgages from both bank and non-bank lenders have allowed for a loan to value ratio (LVR) equal to or more than 80 per cent; in 2008, 26 per cent of mortgage offerings had LVRs equal to or more than 100 per cent. Loan offerings should not be confused with loan approvals.

I/O loans now make up over 60 of investor loans, and over 40% of all mortgages.

Net rental income losses have mounted for investors, as rents have generally tracked the rate of inflation while housing prices and mortgage debt have simultaneously boomed. The losses are larger than indicated because the ATO does not record data on principal payments, as it is not a legal deduction. Two-thirds of investors were negatively-geared in 2012, a significant rise from the 1990s when only half of this cohort were in the same position.

Probably explains why NG is so untouchable these days.

The reason why property investors are negatively geared, on aggregate, is the rising interest payment burden on the exponentially-growing stock of mortgage debt. Housing-related expenses have remained steady at around 50 per cent of gross rental income.

 

[sptrawler]

quite an interesting article. gives a good historical contex to current prices

http://www.macrobusiness.com.au/2014/12/the-history-of-australian-property-values-redux-2/



I/O loans now make up over 60 of investor loans, and over 40% of all mortgages.



Probably explains why NG is so untouchable these days.

I/O loans at these low rates, makes for very cheap money, if you are in the highest tax bracket.
It must be under the microscope, however can't see the Government doing anything, other than take any proposed changes to the election.

 

[trainspotter]

I/O loans at these low rates, makes for very cheap money, if you are in the highest tax bracket.
It must be under the microscope, however can't see the Government doing anything, other than take any proposed changes to the election.

Government won't be doing anything about interest only loans to investors. RBA will muscle APRA into doing this:-

The Australian Prudential Regulation Authority (APRA) has today written to authorised deposit-taking institutions (ADIs) outlining further steps it plans to take to reinforce sound residential mortgage lending practices. These steps have been developed following discussions with other members of the Council of Financial Regulators.

In the context of historically low interest rates, high levels of household debt, strong competition in the housing market and accelerating credit growth, APRA has indicated it will be further increasing the level of supervisory oversight on mortgage lending in the period ahead.
At this point in time, APRA does not propose to introduce across-the-board increases in capital requirements, or caps on particular types of loans, to address current risks in the housing sector. However, APRA has flagged to ADIs that it will be paying particular attention to specific areas of prudential concern.

These include:
a) higher risk mortgage lending ”” for example, high loan-to-income loans, high loan-to-valuation (LVR) loans, interest-only loans to owner occupiers, and loans with very long terms;
b)strong growth in lending to property investors ”” portfolio growth materially above a threshold of 10 per cent will be an important risk indicator for APRA supervisors in considering the need for further action;
c)loan affordability tests for new borrowers ”” in APRA’s view, these should incorporate an interest rate buffer of at least 2 per cent above the loan product rate, and a floor lending rate of at least 7 per cent, when assessing borrowers’ ability to service their loans.

Good practice would be to maintain a buffer and floor rate comfortably above these levels.

http://www.apra.gov.au/MediaReleases/Pages/14_30.aspx

:sleeping:

 

[sydboy007]

I/O loans at these low rates, makes for very cheap money, if you are in the highest tax bracket.
It must be under the microscope, however can't see the Government doing anything, other than take any proposed changes to the election.

I'm starting tot hink any changes should be held off till the slow down / recession impact is fully felt.

If APRA does start to limit I/O loans, or NG is quarantined to new builds, any fall in property prices will be blamed on the changes, rather than the unsustainable fundamentals of falling yields while unemployment increases.

 

[trainspotter]

I'm starting to think any changes should be held off till the slow down / recession impact is fully felt.

If APRA does start to limit I/O loans, or NG is quarantined to new builds, any fall in property prices will be blamed on the changes, rather than the unsustainable fundamentals of falling yields while unemployment increases.

I concur with this statement. The changes are designed to slow down the property market. Talk about shutting the gate after the horse has bolted.