As Sydney’s housing market shows signs of slowing to a gentle simmer, rather than the boiling cauldron of turmoil it’s been for some time, a collective sigh of relief has rippled through the markets.
Some experts suggest recent, heavy-handed regulatory intervention from the Australian Prudential and Regulatory Authority (APRA) has worked its magic. Thank goodness the boom has been contained!
Others however, are not so certain we should be celebrating what might be a shallow victory, before the impending storm on the housing market horizon.
Sales fall…but does the sky?
Usually, when a market is overheated and being blamed for a major affordability crisis, a slow down in sales activity and easing in price inflation comes as welcome news.
So when media outlets proclaimed an impending fall in Sydney house prices for the first time in 18 months this weekend, owner-occupiers should surely be pleased to read these good tidings! Not to mention the Turnbull government!
CoreLogic data indicates that for the first 27 days of April, house prices in the Harbour City have dipped by 0.1 per cent for the first time since December 2015. While in Melbourne, property prices have risen by 0.5 per cent, which is half as much as the previous month.
The elephant in the room however, is the preferred property sector for speculators…the new apartment market.
As usual, when things slow down, this is the niche housing market that feels the pain. While the reported 2 per cent dip in average asking prices for Sydney’s new apartment stock this month might seem relatively harmless, developers are getting a little nervous.
And when you hear the type of unprecedented happenings arising from the coalface right now, it’s hardly surprising.
Giant developer Meriton recently confirmed that one in four local and overseas Chinese buyers who pay a deposit on an apartment, ultimately exercise their right to ‘return’ the product and have their deposit refunded in full a couple of days later.
Making matters worse, three major Sydney sites earmarked for high-rise construction that were purchased by Chinese developers, are now back on the market.
Of course the bigger picture problem with this latest occurrence around foreign investment is that it suggests the Chinese are not quite so sure they want to keep pouring their money into Aussie property.
Given the overseas investor cohort has constituted the most active buyer demographic in both the Sydney and Melbourne apartment markets, you can see why developers are starting to doubt their continued good fortune.
The conundrum here is very apparent. For the last couple of years, the government has been accused of allowing a flood of foreign money into our property markets and contributing to the affordability crisis for young first homebuyers.
Now, in a bid to address the investor/owner-occupier imbalance and let’s face it, what’s kind of become a bit of a mess for our property markets, the government is clamping down on foreign buyers.
At the same time, local banks have pulled funding from Chinese OTP purchasers and it’s becoming increasingly difficult for Chinese nationals to move money out of their own country.
Meanwhile, banks are being coerced yet again into curbing investor based borrowing and interest rates are on the rise if you’re purchasing property as an asset.
The federal treasurer and his cohort are talking ways to make housing more affordable (even though they don’t quite seem to know how to go about it) and the opposition is promising to limit negative gearing entitlements for the purchase of new dwellings only if they assume power.
It’s almost as though these politicians cannot see the wood for the trees!
Their attempts to hack away at a very large affordability problem, created by them in the first instance to reinforce our economy through housing, is driving away buyers who can see a very bumpy road ahead if some of these plans come to fruition.
Making housing more affordable by taking action to cause a major property market correction of 10 to 20 per cent would be catastrophic for Australia’s banking sector.
And our government would be foolish not to learn from the lessons of others, such as Vancouver, where taxes applied to foreign real estate purchases dramatically reduced prices last year in the wake of plummeting sales volumes.
How much difference does $100 make?
Another consideration for government bureaucrats and finance sector regulators right now is of course, interest rates!
Many suggest an interest rate rise is the only means by which we’ll see any balance return to some of our overly frothy housing markets.
But according to recent research from finder.com.au, a staggering 57 per cent of all mortgage holders would flounder with their monthly housing repayments in light of a monthly increase of just $100.
While $100 extra each month might seem like a stretch from where we currently sit in the interest rate landscape, this really only represents a rate rise of just 0.45 per cent, based on the average national mortgage of $360,600.
In other words, the average standard variable rate would only have to increase from 4.83 per cent to 5.28 per cent, which is still well under the industry accepted, repayment capacity interest rate buffer for a home loan of around 7 per cent.
Money expert at finder.com.au, Bessie Hassan says, “The typical mortgage holder will begin to struggle once interest rates reach around 5.28% – that’s a pretty small window before borrowing costs start to hurt.
“The reality is borrowers have over-extended themselves if it only takes a $100 leap in repayments for more than half of homeowners to reach their tipping point.”
The calm before the storm?
It’s not yet clear how all of these ongoing and unanswered elements will influence the future of Australia’s housing markets.
As I’ve repeatedly said for some time now, the only certainty in any of this is a continuing air of uncertainty.
And what of the government’s pitch to address the ensuing chaos around housing affordability and market activity in the impending federal budget?
Well, they’ve certainly scaled back initial proposals somewhat. Plans to raid homebuyers’ super funds have been all but scrapped, even though there’s still no viable solution to young people accessing financial assistance to pay for a deposit. And talk of adjustments to the capital gains tax concession and negative gearing has seemingly gone by the wayside.
Labor’s finance spokesman said on Sky News last week, “any policy on housing affordability which doesn’t make important and considered changes to capital gains and negative gearing has a hole in the middle of it.”
Seems they’re suggesting the Libs are baking up doughnut policies…Here’s hoping the housing gods continue to smile on us.