…the surge in settlements – this year alone will see four times as many apartments settle as the 11,145 of 2010…
For many buyers in Sydney, which overtook Melbourne in numbers of settlements in 2014 and is now surging, the risk is minimal, says David Milton, CBRE’s Sydney-based managing director of residential projects. The price rises of recent years make it likely that even if banks are cutting back, the increased value of their dwellings will put buyers on safe ground, he says.
…Rick Curtis is the managing director of Bensons Property Group [says] “We tell people – just count on getting 50 per cent gearing and count on having your money ready,” Curtis says. “The rules have changed. If they are thinking they are going to get 70 per cent real gearing without mortgage insurance and without collateral security, it’s not going to happen.”
Banks are not only cutting back their LVRs from the previous 95-odd per cent towards 80 per cent, they are also taking a more conservative approach to valuing completed apartments, and in the case of at least one retail bank, this means between 15 per cent and 23 per cent below the purchase price, Curtis says.
The big unknown is what degree of default will we come from foreign buyers as it has become much more difficult to get money out of China. At its peak the boom was supported by 20% foreign purchases and up to one third in Melbourne. In my experience foreign buyers are very sensitive to changing macro circumstances.
During the GFC I was at the coal face of the apartment industry and watched as foreign demand evaporated forcing banks to tighten even further on settlement terms at just the wrong moment for developers. If I had a dollar for every developer I spoke to that was cursing his banker back then I’d be a rich a rich dude.
It was this phenomenon that in part led to the absurd proposal by Labor to form a “Rudd Bank” to finance troubled developers.
Less than three months after the federal government introduced fees and a tighter framework applying to foreign buyers of real estate, agents and property executives argue deals are falling over and buyers are walking away due to long waiting times for approval and excessive red tape.
A slew of major listed and private developers have approached the peak body in past weeks to voice concerns over the new system that charges foreign buyers a minimum fee of $5000 for the Foreign Investment Review Board to assess, and potentially approve, a property purchase.
Developers have reported foreign buyers are taking twice as long to exchange on homes and apartments, and are facing waiting times for approval that are longer than expected.
The Property Council of Australia will meet Foreign Investment Review Board and Treasury officials next week following a wave of complaints over the new system that was introduced on December 1 to more closely scrutinise foreign property purchases.
It’s not “red tape”, it’s sensible scrutiny of foreign buyers who have flouted Australian rules.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
