The Foreign Investment Review Board released data for 17/18. The value of approvals to buy housing collapsed 58% y/y to $13bn in 17/18, the lowest level since 09/10, after already slumping 59% y/y to $30bn in 16/17. After a ‘super boom’ of 322% from 12/13 to the record $72bn in 15/16, approvals collapsed 83% over 2 years. In 17/18 NSW (-33% y/y to $4bn) & Victoria (-53% to $5bn) retraced. The national fall was led by new housing (-62% y/y to $10bn), but with established also down (-21% to $2bn).
The likely five reasons for the plunge are 1) the ongoing hike in Government taxes on foreigners (including both upfront additional stamp duty and other material holding costs); 2) far greater scrutiny of applicants (as of 17/18, residential land approvals have included a condition to register on the Residential Land Register, & the maximum share of dwellings in developments that could be sold to foreigners was halved to 50%); 3) domestic lenders tightening for foreign buyers (no longer lending against foreign sources of income or collateral); 4) tighter capital controls, especially from China; and 5) a weaker outlook for house prices towards the end of the period.
…we have a nonconsensus view the RBA will cut the cash rate by 25bp in both Nov-19 & H1-20.
Quite right though the RBA will move earlier than that. I expect two rate cuts this year and two more in 2020. Corrupt Chinese capital drove the last house price cycle and now it is crashing it.
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.
