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The Silver Lining In The Foreign Investment Cloud

 

Wow… What a crazy few weeks we have seen in the property industry!

And all thanks to the Victorian State Governments’ changes to foreign Investor stamp duty tax (increased from 3% to 7% as of first of July). Then, just to add more pressure to the gathering storm clouds of the Foreign Investor fiasco, the biggest lender to Foreign Investors completely pull all lending to Foreign Investors in one swoop. Talk about a cyclone forming!

So… How is this cyclone going to impact the Australian property market and where are the opportunities? This has been the majority of conversations I have been recently having with my colleagues, industry partners & clients.

Let’s tackle how this sudden change to lending is going to impact the Melbourne property market.

Firstly, as we speak, there are hundreds of brokers, marketers and property spruikers out there scratching their heads, puzzled on how they are going to settle the hundreds, if not thousands of Off The Plan properties sold to China, Singapore and Malaysian Investors.

The problem they are faced with is the remaining lenders have very strict guide lines for these types of Investors. There are no lenders putting their hands up to take on the risk, therefore many of these properties are now nearing completion with no means of settling.

Being that these properties may not meet the terms of settlement, the numbers predicted translates to an influx of House and Land Packages, Brand New Apartments and Townhouses.  This will definitely leave the developers feeling a little bit nervous. Needless to say, urgently wanting to resell these properties swiftly to pay out their construction loans…. Mind you…. To the same banks who have essentially caused this whole mess, may be a little bit tricky!

Just in case you missed it…. Several banks discovered that Chinese syndicates where supplying false documents to enable people to successfully qualify for loan approvals to purchase property.

From my understanding there where entire networks of fake companies, employers and even bank statements, along with many other documents which aided in many of these people successfully obtaining loans through some of our major banks.

This highlights the risk of buying property off the plan, not only for foreign investors, but also local investors and home buyers. You see… When buying off the plan, the purchaser commits to buying the property in the future….. Unconditionally.

The problem with that is banks don’t guarantee loan approval years from settlement. This leaves purchasers at risk, as banks can change their policies at a drop of a hat AND without notice. They are under no commitment to provide anyone with a loan, even if they gave a pre-approval. If the purchaser cannot come up with the funds, the initial deposit (usually 10%) is kept by the developer, as the contract of sale is now void. The purchaser may also run the risk of being sued by the developer for any losses incurred for not settling…. Unless, of course… The other 90% of the funds is somehow paid in time.

What may have been attractive savings at the beginning of the ‘off the plan’ purchase, can now resemble a not so good deal. But enough about the story, let’s get to where we will see the current course of events make an impact to the local market.

CBD & Inner Suburbs; with loads of development, we expect to see suburbs like: Richmond, South Bank, South Yarra, Docklands, Carlton & parts of St Kilda inundated with brand new vacant apartments.

Middle ring suburbs: I expect that Doncaster, Box Hill, Balwyn, Balwyn North, Glen Waverley, Mt Waverley & Clayton will also have some oversupply issues for off the plan apartments, townhouses & potentially development sites.

Outer-Suburbs Growth Corridors: Looking to the outer suburbs, I’m hearing that the Clyde, Clyde North, Officer & the Berwick Areas, in the South East Growth Corridor are going to be effected, with industry rumour’s that hundreds of blocks of land across several estates likely to come back to market. There was a high percentage of sales done off shore with the House and Land Packages. These deals were done through many of the major builders, who all have their own foreign channel property marketers & spruikers.

In Melbourne’s West areas, such as Point Cook, Tarneit, Truganina and Williams Landing are looking to also be affected.  To the North is Wollert, Donnybrook, Mernda, & Doreen, all potentially exposed to this foreign investor fiasco.

The thing I think that we all missed when this news was released was the effect it will have to our economy and to the buyer confidence, as a whole.

Ultimately, if you’re not buying off the plan, lending requirements are not too restrictive. Property prices for existing properties in sound suburbs with minimal development won’t be affected.

Okay now where’s the silver lining?  

Opportunities

Middle Ring Suburbs (5-20km From CBD):

Auction bidding

Some properties that have been sold recently may come back onto the market due to a foreign purchaser now not having access to funding from our banks. Staying in contact with the real estate agent is an excellent opportunity, if this situation was to occur on a property you have missed out on. The other upside is your ability to negotiate on price!  It is now on your side.house-auction

 

I also think there will be good development opportunities for local developers.  Foreign investor/developers will most likely struggle to get construction funding, under the tighter requirements.  In turn, more sites will be for sale.

Outer-Suburbs (20km+ from CBD): 

The opportunity will be for first home buyers and people looking to upgrade.  The reason for this is considerable amounts of land, as well as house and land packages, are coming back onto the market.

I would be very wary buying in the outer suburbs. High volume of vacant land, comes with a high vacancy rate, in turn means softening rental yields and slower capital growth.

Well…. I said a few posts ago that the government didn’t have the balls to intervene with foreign investors, as it was too busy counting the money it was making and stood to make, on the back of the Melbourne property boom. Well I was wrong they did, although the Victorian state government increased the stamp duty for foreign investors, I think the banks withdrawing from lending to foreign investors will impact real estate sales more so than the tax.

 

Thanks for reading and as always, if you want some help or unbiased advice when buying your next home or investment property, AusInvesta Property Advisors would love to help.

Call Peter on 0416 034 044 or peter@ausinvesta.com.au to discuss all your property needs and how we may serve you.

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