If the Parliamentary inquiry into the foreign property sector in Australia recommends tougher restrictions or screening for overseas buyers, demand could fall, says Knight Frank
Foreign property demand in Australia could fall if tougher restrictions are introduced following next month’s parliamentary inquiry findings into the overseas property sector, warns leading agent, Knight Frank.
Overseas demand, mainly from Asia, remains unabated from foreign buyers for new apartment developments, according to the September 2014 NAB Australian Residential Property Index.
But Knight Frank‘s newly-published Australian Apartments Residential Market Overview for Quarter 3, 2014, says tougher screening and regulation could hit overseas sales.
Michele Ciesielski, of Knight Frank’s Residential Research department, says, “Prices across Sydney and Melbourne are partly being sustained by the interest from overseas purchasers.
“Purchaser demand remains unabated from foreign buyers for new apartment developments, according to the September 2014 NAB Australian Residential Property Index.
“The report shows foreign buyers accounted for one in six of all new housing purchases in Quarter 3 2014, rising to one in four in Victoria. In contrast, the report highlights local investors being less active in Quarter 3, with their share of national demand falling to 27% (32.5% in Quarter 2).
“This level of foreign buyer demand could be tempered dependent on the result of the parliamentary inquiry into foreign investment in residential real estate, which is due to report in November. It is highly likely the parliamentary committee will recommend tougher screening and/or restrictions for foreign buyers of residential property,” Knight Frank points out.
On a global scale, Australia is perceived as a ‘safe haven’ along with other global cities such as London, Paris and New York and it is particularly popular with Chinese investors.
Apartment values have recorded relatively strong price increases with Sydney the best performing market over the past 12 months at 13.3% for Sydney in the year to June 2014, with all other capital cities’ values growing between 1.6% and 6%, according to data provider, Residex.
Next year, Knight Frank estimates that with low interest rates and strong population rises, capital growth across Australia will be 7-8%.
Quarterly data indicates that prices are continuing to increase across Sydney (3.5%), Melbourne and Adelaide (1.9%) and Brisbane 0.7% from April-June 2014. However, all other capital cities experienced real estate price falls, says the report.
After a long period of under supply, commencement of major infrastructure projects, solid population growth resulting from natural increase and high net migration, and global interest in Australian real estate markets are all driving a new wave of residential apartment projects.
Residential apartment sales increased by 20% to 124,000 across the eight capital cities over the last year and more projects are being launched.
More than 75,000 apartments have been approved over the past year across the eight greater metropolitan areas, (82% of the total across Sydney, Melbourne and Brisbane), up 23% in the last year and a 155% from August 2009.
Gross rental yields at 5.99% are highest in Darwin, compared with an Australia average of 4.92%, but they are likely to slow with stronger house price expected across all states over the next 1-2 years and weaker rental prospects as new apartment projects are launched.
The impact of foreign investment in Australian residential property is being examined by the House of Representatives Economics Committee, which is due to announce its findings in November. The committee is looking into various issues concerning overseas property investment, including the economic benefits of overseas investment and its impact on the supply of new housing.
Meanwhile, the Bank of America Merrill Lynch says rather than overseas property buyers pushing up real estate prices, a bigger issue is overcrowded cities and tax breaks for investors.
Almost one in six (59%) of Australians live in cities with one million or more people, which is only surpassed by Hong Kong, Singapore and Japan. Travelling is time-consuming, so many spend more money on property to cut down on commuting.
Foreign property buyers represented the “icing on the cake” in some areas of Australia where they are active, but government figures suggest they represent a small fraction of the AUS$8billion borrowed by Australian residents to buy homes in 2013/14, according to the report by Merrill Lynch Economist, Saul Eslake.
Developer Stockland believes that a flood of foreign investors and a housing supply shortage will provide a buoyant market for at least five years.
Chairman Graham Bradley says, “We’ve been building about 1,000 houses too few per month for about five years now in Australia, so there’s a considerable backlog of undersupply. There would have to be record numbers of house building for the next three years for us to really eliminate that undersupply. It promises to be a good market for us over the next three to five years,” the AAP press agency reports.
By Adrian Bishop, Editor, OPP Connect