Why non-banks could be the new home for non-resident borrowers

From Mortgage Professional Australia.

Lenders eyeing up wealthy foreigners currently locked out of the banks and developing new processes to combat fraud

Non-resident lending could be set for a return as non-bank lenders become increasingly interested in the sector.

According to La Trobe Financial’s vice president Cory Bannister, “non-resident is a great example of a product that suits non-banks generally.” Speaking at MPA’s Non-Banks Roundtable last week, Bannister said that the low LVRs, low arrears and high net-worth associated with non-resident borrowers made them similar to prime clients.

The banks largely pulled out of non-bank lending in early 2016, citing fears of fraud. However, Bannister believes non-banks can operate safely: “we believe it requires manual assessment and that’s the single characteristic which meant the banks had to step out of that space.”

La Trobe, who have lent to non-residents on and off over the past year, have an international desk with bilingual staff which help ‘weed out’ fraudulent cases.

Growing niche in expat lending

Two other lenders at the panel were already lending to Australian expats: Better Mortgage Management and Homeloans Ltd.

Expats often struggle to find finance at the banks because they earn income abroad and in foreign currencies. BMM’s managing director Murray Cowan told the panel that “I think the expat sector may have been unfairly characterised as the same as non-residents and that might have created a bit of an opportunity for us there.”

Aaron Milburn, director of sales and distribution at Pepper Money, said that although Pepper doesn’t currently lend to non-residents “I wouldn’t discount it for the future.” He noted that Pepper’s international spread helped provide the infrastructure to do so.

Can non-banks handle non-residents?

Non-banks at the panel were concerned however that a return to non-resident lending could lead to a surge in business.

In fact, it could cause volumes to triple ‘overnight’, suggested Homeloans and RESIMAC general manager of third party distribution Daniel Carde. The panel broadly agreed that such a surge would be difficult to deal with. “No business is set up for triple volumes,” argued Liberty’s national sales manager John Mohnacheff “we can probably handle 5-10% variability”.

A note of caution was sounded by FirstMac founder Kim Cannon. “The RBA wants to stop [non-residents buying property]; they don’t want to cure it,” he told the panel. He warned that surge in non-residents getting financed by non-banks would be “treading on dangerous ground” with regulators.

Chinese Still Buying Australian Property In Droves

According to new analysis by Credit Suisse, demand for housing from Chinese buyers remains strong, especially the purchase of new developments, and this will put a floor under property especially in the main urban centres of Sydney and Melbourne.

As reported in Business Insider, new restrictions on foreign investors are unlikely to stop the flow of housing demand from China, according to Credit Suisse analysts Hasan Tevfik and Peter Liu.

And crackdowns on capital outflows by Chinese authorities appear not have slowed China’s appetite for Australian property, the pair say.

The latest numbers are based on state tax revenue data obtained by Tevfik and Liu in March through a Freedom of Information Request.

“We calculate foreign buyers are acquiring the equivalent of 25% of new housing supply in NSW, 17% in Victoria and 8% in Queensland. Almost all of this is from China,” the analysts said.

Updated to June, the figures show that foreign buyers are snapping up Australian property at an annualised rate of $10 billion per year across NSW, Victoria and Queensland.

That’s only a small percentage of Australia’s $6.7 trillion housing market, but importantly, it makes up a significant percentage of the demand for new housing supply.

Nearly a third of new housing stock being built in NSW is being bought by foreigners. Obviously not all of that is for new dwellings, but the vast majority would be.

And while much has been made of the crackdown on investor-funds leaving China, the Credit Suisse research shows the actual impact has been minimal.

Here are Tevfik and Liu’s comments :

In December 2016, the Chinese authorities introduced new and stronger capital controls to slow money flowing out of the middle kingdom. Our tax receipt data help measure how effective these controls have been — and it seems they haven’t been. In NSW, where we have three complete (and reliable) quarters of tax receipt data, we can see foreign demand for property has so far hovered around $1.4 to $1.6bn per quarter.

After concluding that China’s crackdown doesn’t appear to be stemming off-shore capital flows, Tevfik and Liu also noted that Chinese investors are cashed up and ready to spend.

There are currently 1.6 million US dollar millionaires in China, and that converts to shared wealth of a whopping $13 trillion – around twice the size of Australia’s housing market.

“As our property market becomes more global perhaps we should be concentrating less on Australian incomes as a measure of buying power and more on wealth creation in the Asian region,” the analysts said.

So, what factors could stem the seemingly invevitable flow of capital from Asian markets into Australian property?

Tevfik and Liu highlighted the potential impact of recent tax increases on foreign investors introduced by Australian states, as well as the impact from a devaluation of the Chinese currency.

In June, NSW announced that it would double stamp duty on foreign investors from 4% to 8% while land tax would increase to 2% from 0.75%, effective from July 1.

Victoria and Queensland also impose additional taxes on foreign investors of 7% and 3% respectively, calculated as a proportion of the purchase price.

However, they said that past examples from other international suggest the impact on house prices will be small.

“The introduction or increase of a tax on foreign buyers seems to slow demand to a point where property prices decelerate, but it does not cause housing values to contract,” Tevfik and Liu said.

This chart shows the impact on house prices in other international markets after the implementation of tax increases on foreign investors.

“Based on the experience of other cities around the world, we do not believe the recent increase in taxes by NSW will cause property prices to contract,” the pair said. Although they added that Chinese investors are an easy target for Australian state governments, and didn’t rule out further rate increases in the future.

A more likely scenario to reduced demand, the analysts said, would be a devaluation of China’s currency, the renminbi.

“From our many and various discussions with Chinese investors and companies, there is a consensus view that the renminbi is set to depreciate further from here. If and when it does the buying power of Chinese investors will diminish.”

Tevfik and Liu noted that the renminbi has been broadly depreciating since 2014. In that context, they added that Chinese policy-makers are focused on stability ahead of the 19th Communist Party Congress later this month, but said movements in the currency after that will be worth monitoring.

In summary, the two analysts dispute recent reports suggesting foreign investor demand will slow. On the contrary, “we forecast these flows to continue at a strong pace and will serve to cushion the downside in activity and prices”, they said.

“It’s different this time. While we acknowledge residential investment and house price inflation are set to moderate we don’t think there will be a collapse. The foreign buyer has never before been as an important driver of the Australian housing market as she is now.”

Beijing Restrictions Will Cause Chinese Buyers To Retreat From Global Property Market

According to the South China Morning Post, cash-rich Chinese firms – the big spenders in the global property market in the past four years – are getting cold feet as Beijing tightens controls on outbound investment.

“Requests for overseas acquisitions are already drying up,” said Paul Guan, a partner with global law firm Paul Hastings who advises Chinese institutional investors on overseas real estate.

“Business owners all know the Chinese government has sent a clear signal this time that they want to curb overseas investment in the property sector,” Guan said.

The move will put pressure on prices in key property markets from New York to London. The top three overseas destinations for Chinese property investors in 2016 were the United States, Hong Kong and Australia, while pending deals have accumulated mainly in Britain and the US over the past six months, according to Real Capital Analytics.

Chinese were the biggest foreign investors in US and Australian real estate last year, accounting for 25 per cent of deals in the US and 26 per cent in Australia.

They also accounted for 25 per cent of all central London commercial property acquisitions in 2016, while some 80 per cent of residential land sold in Hong Kong so far this year was bought by Chinese firms, according to data from Morgan Stanley. Chinese investment in the city has quadrupled since 2012, the financial services firm said.

“Transaction volumes will definitely go down in the hot destinations, and property prices could also be affected,” said Hans Kang, chief investment officer of InfraRed NF Investment Advisers.

On Friday, the State Council said it would restrict overseas investment in a number of areas including property, hotels, the film industry and other forms of entertainment, and sports clubs. Investors would have to seek special approval from the regulators for such ventures.

Dalian Wanda Group on Tuesday backed away from a £470 million (US$605.63 million) acquisition of the Nine Elms Square site in London, after the government’s new capital controls were announced.

Outbound investment by Chinese companies has surged since 2013, with Beijing pushing for more of them to go global and as foreign exchange reserves continued to pile up.

But the government has since 2015 become worried about the scale of capital outflows, particularly in property, at a time when the yuan has sharply depreciated and there are fears of a domestic property bubble, creating problems for the country’s balance of payments.

Added to those fears are companies that borrow money on mainland China to buy overpriced overseas assets, which runs counter to President Xi Jinping’s deleveraging efforts.
“That could hit the financial stability of China’s banking system if there are any fluctuations in outside markets,” Kang said.
“Chinese buyers accounted for 25 per cent of all central London commercial property acquisitions in 2016, according to Morgan Stanley.

In past months, policymakers have tightened regulations on “irrational overseas investment” and ordered banks to check the credit exposure of a number of aggressive dealmakers including Wanda, Fosun International, HNA Group and Anbang Insurance Group.

All of those companies had been on a shopping spree in overseas property markets in recent years.

Anbang, for example, made headlines in 2014 with its US$2 billion purchase of New York’s Waldorf Astoria hotel.

HNA Group, which owns Hainan Airlines, meanwhile bought a 25 per cent stake in Hilton Worldwide Holdings for US$6.5 billion last year. It has also paid a record HK$27.2 billion for four residential sites in Hong Kong since November.

And Wang Jianlin, who runs one of China’s biggest property developers, Wanda, has invested some A$2 billion (US$1.58 billion) in two mega mixed-use projects in Australia since 2014.

Wang Jianlin, who runs Wanda, has invested US$1.58 billion in two mega mixed-use projects in Australia since 2014.

But now those dealmakers find themselves under intense government scrutiny, their ambitious global plans have come to a screeching halt and their focus is shifting back to the domestic market.

Wang told financial media outlet Caixin last month that his company would “actively respond to the state’s call and divert its main investments to China” after it sold off US$9.3 billion of assets to rivals in order to repay debts.

The retreat is already being felt in global markets. Outbound property investment by mainland Chinese firms was down 82 per cent in the first half from a year ago – and it’s expected to plummet 84 per cent for the whole year to US$1.7 billion, according to Morgan Stanley. The total investment in 2016 was US$10.6 billion.

That trend will create headwinds for prices in Hong Kong, the US, Britain and Australia over the medium term – especially for office assets in Manhattan, central London and Hong Kong, which is the most exposed, it said.

Guan from the law firm said prices in the high-end residential market in New York were also likely to be hit by the loss of Chinese buyers.

For the first time since October 2012, no contracts worth over US$10 million were signed in the city last week, according to data from Olshan Realty.

Others were more positive, and believed the impact of the restrictions would be limited to related markets, which would continue to be shaped by broader macroeconomic trends and fundamentals.

“Fortunately, the United States’ key markets are still desirable enough that without one particular flow of capital from a region, the impact should be nominal if all economic and market conditions are normal and healthy,” said Andrew Feldman of New York-based real estate agency Triplemint.

Added to that, many Chinese companies had already moved currency overseas and could continue to issue debt or equity through offshore platforms if they wanted to invest in property, according to Ben Briggs, executive vice-president of Briggs Freeman Sotheby’s International Realty based in Xiamen.

“They will just do the investments in a more quiet and sophisticated way,” Briggs said.

Thomas Lam, senior director of Knight Frank, agreed that the restrictions would not stop Chinese companies from investing abroad.

“In the longer term, going global will continue and it will remain an essential means for Chinese companies to diversify risks and secure sustainable returns,” Lam said.

Foreign Investors in Sydney paying almost four times as much stamp duty as locals

The HIA says recent changes to stamp duty in NSW mean that foreign investors now pay almost $100,000 in transaction taxes to acquire a standard apartment in Sydney – almost four times as much as local buyers.

This remarkable finding is contained in the latest Stamp Duty Watch report which has just been released by the Housing Industry Association.

The average stamp duty bill in Australia paid by resident owner occupiers is also up by 16.4 per over the year to $20,725, even though dwelling prices increased by just 10.5 per cent .

On the owner occupier side, stamp duty drains family coffers of $107 each and every month over a 30-year mortgage term. For owner occupiers, the typical stamp duty bill now amounts to $20,725 – an increase of some 16.4 per cent on a year ago.

Shelling out so much in stamp duty drains the household piggy bank of vital funds for their home deposit. Families are then forced to take out larger mortgages and incur heavier mortgage insurance premiums.

Foreign investors are a vital component of rental supply in cities like Sydney and Melbourne. With rental market conditions now so tight in Australia’s two biggest cities, should we really be placing more and more barriers in the way of new supply?

Can Australia get any worse for foreign buyers?

From Mortgage Professional Australia.

New financial year brings additional charges and regulations as Treasury predicts number to more than halve.

Capital controls, bank lending standards and foreign buyer taxes could “wind back the clock to 2015”, international real estate portal Juwai.com has warned.

The new financial year has hit foreign buyers with increased stamp duty – 8% in NSW and 7% in Victoria – as well as a new vacancy tax and 50% cap on off-the-plan properties sold to non-residents.

Lending to foreign buyers remains extremely tight, brokerage Alliance Mortgage Solutions told MPA with just a handful of non-banks continuing to lend to borrowers at relatively high rates. Additionally, the fall in the Chinese renminbi has made Australian property relatively more expensive.

Speaking in May, Australian Treasury Secretary John Fraser noted that “the number of all foreign investment applications for residential housing has fallen from 40,000 in 2015 16 to an expected 15,000 in 2016 17.”

Australia is falling behind globally

The warning by Juwai.com chief of operations Sue Jong was part of an otherwise optimistic report on Chinese investment in real estate abroad, which hit $133.7bn in 2016

Australia remains the second most popular destination for real estate, after the USA, but Jong observed that “investment flows have decreased markedly from their peak, while remaining strong by historic standards.”

Globally, Juwai.com expects 2017 to be one of the top three years on record for Chinese investment, arguing that there is still plenty of pent-up demand to invest in China. Relative to population size, Chinese investors own less real estate than Slovenians.

It’s far from guaranteed that the Australian Government’s measures will reduce foreign buyer demand. Writing in MPA, Juwai.com’s Australian head Jane Lu suggested fewer than 5% of their clients would be hit by the tax, many of which were wealthy enough not to care.

Brokers diversifying away from the sector

A further fall in foreign buyer numbers would be a further nail in the coffin for brokers working with this group.

Back in 2014, industry rankings such as MPA’s Top 100 Brokers report were dominated by brokers working with foreign buyers.

Whilst many of these brokers remain in the industry, they have had to make major changes; Alliance Mortgage Solutions, one of this year’s MPA’s Top 10 Independent Brokerages, saw 35% of their business affected and have introduced client fees in response.

Other Top 10 brokerage N1 Loans, part of ASX-listed N1 Holdings, has diversified into real estate, using real estate agents to drive customers to their brokers. “We’ve had this plan for 18 months to diversify, CEO Ren Wong told MPA “our aim is to have mortgage broking revenue less than 50% of the overall revenue competition.”

Sydneysiders blame foreign investors for high housing prices

From The Conversation.

Sydneysiders are concerned that foreign investors, and particularly Chinese real estate investors, are pushing up housing prices, according to survey findings published this month. A majority believed foreign investors should not be allowed to buy residential real estate in Sydney.

The federal budget was the government’s latest attempt at navigating a policy solution that supports its pro-foreign investment position while responding to public concern about housing affordability in Australian cities.

China’s government is also searching for a policy solution to restrict the large amount of capital that’s flowing out of the country. But the Chinese crackdown “doesn’t appear to be working”.

We surveyed almost 900 Sydneysiders to investigate their views on foreign real estate investment. The effectiveness of government regulations on foreign investment and investors was a major concern for respondents.

Views on government regulations

The survey obtained the views of people aged over 18 living in the Greater Sydney region. They were asked about housing affordability, foreign investment, the drivers of Sydney housing prices, and perceptions of Chinese investors specifically.

Support for the government’s regulation of foreign investment in housing was weak. Only 17% of respondents thought it was effective.

Almost 56% of participants believed foreign investors should not be allowed to buy residential real estate in Sydney. Only 18% believed this should be permitted.

More than 63% of participants disagreed that the “government should encourage more foreign investment in greater Sydney’s housing market”. Only 12% of participants agreed with this.

These views stand in stark contrast to the government’s geopolitical support for foreign investment in Australia.

Views on foreign investors

There is little fine-grained data about the impacts of foreign capital and investors on specific neighbourhoods and developments in Australian cities. Therefore, we did not set out to compare public attitudes against the limited empirical evidence on the effects of foreign real estate investment in Sydney.

What’s significant about the survey results is that Sydneysiders have strong views on foreign investment, despite the absence of reliable evidence. Participants’ concerns about foreign investors and investment were consistent with their concerns about the government’s foreign investment rules.

Around 63% of Sydneysiders identified the Chinese as the heavyweights of foreign investment. This is likely to be accurate, given the concentration of Chinese investment in Sydney and Melbourne.

When presented with the statement “I welcome Chinese foreign investors buying properties in my suburb”, more than 48% of participants disagreed.

Other studies, however, have shown the potential for public confusion between domestic Australian-Chinese and international Chinese buyers.

Views on the drivers of housing prices

Respondents were asked to choose up to three drivers of house prices based on their understanding of Sydney’s housing market. By far the most commonly nominated driver of house prices (64% of respondents) was foreign investors buying housing.

Roughly one in three survey participants saw low interest rates (37% of respondents) and domestic home owners (32%) and investors (32%) as the drivers of higher housing prices. Local housing analysts generally agree with this.

But more than three in four participants (78%) agreed with the statement:

Foreign investment is driving up housing prices in greater Sydney.

When framed inversely, as “Foreign investment has no impact or very small impact on greater Sydney’s housing market”, more than two-thirds of participants (68%) disagreed with the statement.

Only 6% of our participants disagreed that foreign investment was increasing real estate prices. Around 11% agreed that foreign investment had no or minimal impact.

Views on housing supply and affordability

We expected people to report that foreign people and capital are driving up housing prices and making it more difficult for Australians to compete in the housing market. But we were surprised by the findings about Sydneysiders’ views on foreign capital and housing supply.

A strong message from the real estate and property development industries is that foreign investment increases housing supply, which in turn puts downward pressure on prices.

Politicians and lobby groups argue this will help improve housing affordability in major Australian cities. But many housing analysts argue that this supply solution does not stack up for purchases made by either foreign or domestic investors.
It seems that Sydneysiders don’t accept the real estate industry message about foreign investors increasing housing supply, and therefore helping to ease housing affordability pressures.

When asked if “Foreign investment can help increase housing supply in greater Sydney”, 48% of participants disagreed with the statement. Another 25% “neither disagreed or agreed”.

An unresolved policy dilemma

The government’s dilemma is how to manage foreign investment alongside an increasing housing affordability problem in major Australian cities.

This month’s federal budget included a crackdown on foreign investors, but the government still supports foreign real estate investment.

Our survey results support other studies that suggest this pro-foreign investment stance must be accompanied by strategies to protect intercultural community relations. This must happen alongside efforts to improve housing affordability.

Authors: Dallas Rogers, Senior Lecturer, Faculty of Architecture, Design and Planning, University of Sydney; Alexandra Wong, Engaged Research Fellow, Institute for Culture and Society, Western Sydney University; Jacqueline Nelson, Chancellor’s Postdoctoral Research Fellow, University of Technology Sydney

Westpac overhauls lending conditions

From Australian Broker.

Major bank Westpac and its subsidiaries BankSA, Bank of Melbourne and St George have announced a wide range of changes to home loan products across the board.

Westpac has increased the rates on its fixed rate investment property, SMSF and non-resident fixed investment property loans with interest-only repayments by 20 basis points. These changes came into effect on Monday (22 May).

There will be no changes to Westpac’s policy of no new lending to non-residents, however, with the increased rates only available to non-residents seeking to switch their existing lending.

The major has also updated its customer identification and verification process, meaning brokers will now also have to ask for tax residency information.

Under the Common Reporting Standard (CRS), banks such as Westpac are obligated to collect and maintain information about the foreign tax residency of their customers. This means that, effective from Monday (22 May), new mortgage customers will need to confirm if they are a tax resident of a foreign country.

The collection of this data is mandatory when finalising a customer’s loan application with a branch. If the individual answers yes, the countries where they are a tax resident plus their Tax Identification Number (TIN) will need to be collected.

“Please be aware of this new requirement as you are having discussions with your customers, to prepare them for what information they need to provide to branch staff,” Westpac wrote in a broker note.

“We regularly review our rates and the changes to fixed rates reflect prudential regulatory requirements and the economic environment,” a Westpac spokesperson told Australian Broker.

Westpac’s subsidiaries

At BankSA, Bank of Melbourne and St George Bank, a number of changes have been made to interest rates across a wide variety of owner occupier and investment products, effective Monday (22 May).

For standard fixed rate principal & interest mortgages, the three year fixed rate for owner occupiers has dropped by 21 basis points while the three year fixed rate for residential investment dropped by 30 basis points.

The interest rate for these lenders’ residential investment standard fixed rate interest only loans increased by 20 basis points for terms between one and five years.

A similar increase of 20 basis points has also been made across all portfolio fixed rate loans (of one to five year terms).

Rates for principal and interest low doc loans have only changed for those with three year terms. For owner occupiers, rates dropped by 21 basis points while for residential investment they dropped by 30 basis points.

The final rate change is an increase of 20 basis points to all residential investment low doc fixed rate interest only loans and fixed rate super fund interest only home loans regardless of the term.

Westpac’s subsidiaries have also extended the current $1,500 Refinance Cashback offer for owner occupiers and investors which was previously due to expire on 31 May. Those eligible will need to refinance from outside Westpac or its subsidiaries. Owner occupiers are restricted to switching to a principal and interest loan.

Finally, the banks have banned borrowers from switching from principal and interest loans to interest only within the first 12 months of loan drawdown. If the client requires this, a full re-origination will be required with some limited exemptions.

 

Citi Australia halts new foreign interest only lending

From Australian Broker.

Citi Australia has updated its new home loan policies including a freeze on new interest only lending to foreign buyers.

Effective from 13 April for all new Citibank applications, the interest-only repayment option on both standard variable loans and the Mortgage Power line of credit is now not available for:

  • Loans solely with owner occupied security
  • All non-resident loans
  • Loans reliant on foreign income
  • Loans which require FIRB approval

“This means, interest only repayments will only be allowed for resident loans secured by investment property, unexpired pipeline deals remain unaffected,” the bank said in a note released to brokers.

For loans with mixed securities (cross-collaterised owner occupier and investment properties), interest only repayments and Mortgage Power are only available on the portion of the loan that exceeds the value of the owner occupied security.

Citibank has also announced that interest only repayments will not be available for mortgages with an LVR of greater than 80%.

Finally, the bank’s offset mortgage product will no longer be offered to all new Citigold non-resident and foreign income applications.

There’s finally hard data on the huge role of foreign buyers in Australian property

From Business Insider.

We now know how many houses foreign investors are buying in New South Wales and Victoria, the hotbeds of Australia’s housing affordability debate.

According to new research based on data obtained under a Freedom of Information request by Hasan Tevfik and Peter Liu, research analysts at Credit Suisse, foreigners are buying property at an annualised rate of $8 billion per annum, equating to 25% of new supply in New South Wales and 16% in Victoria in the past 12 months.

“We have been able to gather new data from the state revenue offices of New South Wales and Victoria that reveal the size, source and changes in foreign demand for Aussie housing,” the pair wrote in a research note on Thursday.

“The data is new and is available because state governments now collect taxes from foreign buyers.”

The bombshell figures suggest that, along with local investors, the level of foreign investor activity in the housing markets has been a significant driver of the price growth of recent years, and the overwhelming majority — a staggering 80% in NSW — is coming from China.

In a note to clients, Tevfik and Liu write:

Now there is credible, official data on the amount of foreign demand for Aussie housing. We made a Freedom of Information Act request for this data and you can imagine our excitement (we are nerds and love new data) when the state governments of NSW and Victoria complied. Here is what the data reveals.

1. Foreign demand for housing in NSW is currently running at an annualised rate of $4.9bn and is the equivalent of 25% of new supply. We think this is extraordinary given that current supply is nearing peak cycle. In Victoria foreign buyers are hoovering up 16% of new supply.

2. When we talk about foreign buyers we are really talking about Chinese buyers. The Chinese have accounted for almost 80% of foreign demand in NSW. The second biggest group, the Indonesians, account for just 1.7% of foreign demand.

3. It is clear foreigners have been able to settle on their Aussie properties more recently despite the numerous impediments of capital controls and the lack of lending by Aussie banks. There is little evidence so far to suggest the flows have stopped.

“The taxes collected imply foreigners are currently purchasing an annualised $4.9 billion of New South Wales housing and $3.1 billion in Victoria,” say Tevfik and Liu.

According to recent data from CoreLogic, the median dwelling price in Sydney increased by 18.9% in the 12 months to mid-March, and by 14.7% in Melbourne. From January 2009, prices in Sydney have surged by 106%. Melbourne price growth has been similarly strong, increasing by 89%.

The rate of price growth has concerned policymakers, with the federal government examining a range of policy responses in its forthcoming budget to address affordability, and the central bank flagging increasing concerns about financial stability.

“In New South Wales there were 1,503 properties settled involving foreign buyers from October 2016 to January 2017 and they totaled $1.63 billion in value.

“Chinese buyers settled on 1,211 or 80% of them and accounted for 77% of the total purchase value.”

Source: Credit Suisse

 

Tevfik and Liu say that the Chinese figures include buyers from not only mainland China but also Hong Kong, Macau and Taiwan.

There is also little indication that they are having trouble in meeting their settlement obligations, yet.

“In New South Wales there were $225 million of foreign settlements in October 2016 and this rose to more than $450 million in both November and December. In Victoria the value of December settlements was 50% higher than in November,” they say.

“So despite the capital controls put in place in China, and the local banks refusing to lend to purchasers from abroad, foreign buyers were still able to find the financing to complete their transactions.”

In late 2016, China’s central bank begun vetting capital transfers abroad worth $US5 million or more. Previously, only transfers worth $US50 million were required to be reported to authorities.

Those restrictions were tightened further at the beginning of this year with regulators stipulating that people could not purchase foreign exchange for overseas investment, including for buying houses.

With the tax data on foreign purchases now several months old, whether this is impacting the ability of Chinese investors to settle is, as yet, unknown.

According to a report in The Australian earlier this month, many Chinese buyers were struggling to settle upon apartments that they had previously purchased in Melbourne.

Push to increase stamp duty for foreign buyers

From The New Daily.

The New South Wales government is considering increasing stamp duty paid by foreign investors to help first-home buyers get on the property ladder.

The news comes as figures reveal more than one in 10 residential properties sold in NSW are being snapped up by foreigners, with a third of them bought by Chinese nationals.

Data from the Office of State Revenue shows that in the three months from July to September 2016, foreign nationals accounted for 11 per cent — or 2995 — of residential property purchases in NSW compared with 7.51 per cent by first home buyers, according to NSW Labor.

Opposition leader Luke Foley is also pushing for the surcharge to be lifted from 4 per cent to 7 per cent for foreign investors on residential homes — to dampen the pressure they exert on housing prices.

“Evidence suggests a surcharge on foreign investors will take some pressure off house prices and go a way to levelling the playing field for first home buyers,” he said on Tuesday.

NSW Treasurer Dominic Perrottet was aware of the problem and would lift the surcharge in the June budget, according to News Corp.

Premier Gladys Berejiklian concedes more needs to be done to improve housing affordability in the state. 

Doubts over what will help people into housing market

Deputy director of the Australia-China Relations Institute at the University of Technology, Professor James Laurenceson, has also questioned whether the move would improve affordability for Australians trying to get into the housing market.

“The housing prices particularly in Sydney are still going up and that gets at this point — even if the proportion of foreign buyers falls it doesn’t mean that house prices are going to fall,” he said.

He said it was simply not true that foreign buyers, particularly those from China, were squeezing Australians out of the market.

“Foreign Chinese buyers only account [for] 3.6 per cent of demand in New South Wales — a lot of that demand is for new apartments, new houses, not existing houses,” he said.

Professor Laurenceson said 96.4 per cent of buyers were local, so it “was a bit rough to say ‘Chinese buyers are squeezing out local buyers’.”

“Something that the Reserve Bank of Australia has long talked about is the fact that the types of properties foreign investors are buying are not the types of properties first home buyers are buying,” he said.

The Berejiklian Government has made improving housing affordability a priority, and has identified increasing housing supply as a key means to achieve it.

Professor Laurenceson said a Senate Inquiry last year found that foreign investors increased housing supply in Australia.

“It’s basic economics, if you expand supply it’s going to restrain housing price growth, it’s certainly not going to put upward pressure on it.

“There’s lots of reasons why housing prices are going up —but laying the blame at the feet of Chinese buyers when they only account for 3.6 per cent of total housing demand is clearly a misleading narrative.”

– with AAP and ABC