The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices.Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling.
Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings.
The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.
“This change addresses industry concerns, and means property developers won’t be left in the lurch when a foreign buyer pulls out of an off-the-plan purchase,” Mr Morrison said in an announcement.
“It is common sense that an apartment or house that has just been built, or is still under construction and for which the title has never changed hands, is not considered an established dwelling.”
Default rate on rise
The policy change comes after Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1 per cent.
The changes will apply immediately and regulation change will be made soon to enable developers to acquire “New Dwelling Exemption Certificates” for foreign buyers of these recycled off-the-plan homes.
On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks.
On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6 per cent in 2017.
The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to “start showing through” in price drops of between 2 per cent and 6 per cent in that city next year, HSBC chief economist Paul Bloxham said in a note.
It’s a similar story in Brisbane where apartment prices are forecast to fall by as much as 4 per cent.
“A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets,” Mr Bloxham said.
“A modest shakeout in the inner-city apartment markets in Brisbane and Melbourne, as we are forecasting, is not expected to have a broad-based impact on the overall housing market or economy.”
While apartment prices could fall, there were little expectations of price falls in second hand dwellings and houses as stock levels remain tight.
Auctions heating up
Auctions this weekend, one of the biggest sales days of the year, are expected to be well bid. Agents said there had been an uptick in listing volumes for the weekend, contrasting with the past few months when in Sydney listings have been nearly 20 per cent lower than the previous year and about down 4 percent in Melbourne.
“Auction activity is set to ramp up this week with 3127 capital city auctions currently being tracked,” Corelogic said.
“If all of these auctions go ahead it will be the largest auction week of the year…although auction volumes are set to rise across this week, in Sydney and Melbourne volumes are set to be lower than a year ago.”
“It is the last major weekend and people are squeezing in sales,” Raine & Horne director of auctions James Pratt said.
“This will be the spring that never came.”
Raine & Horne already has higher listings for this weekend as has LJ Hooker.
There has even been an unusual rise in scheduled auctions in January, LJ Hooker NSW state manager Ben Mitchell said.
“There’s a lot of pent up demand [from buyers]…who are really sellers,” he said.
“Traditionally, homes hit the market in spring… but that didn’t happen. This delays the inevitable.”
But those volumes may shrink as desperate buyers start to buy before auctions. Both Mr Mitchell and Mr Pratt are starting to see offers being made on Friday.
In Sydney’s west, stock levels were low too, but it was less of a concern for agents because western Sydney was less focused on auctions.
“We need a stimulus for people to move homes,” western Sydney agent Starr Partners’ chief executive Doug Driscoll said.
“Let’s not get ahead of ourselves. Unless there are thousands of auctions, it is quite hyperbolic to call this weekend a Super Saturday.”
In Melbourne, agent Greg Hocking is getting ready for a busy weekend. Melbourne is due to have 1508 auctions ahead of Sydney’s 1143, Corelogic said.
“It’s a typical end-of-season get-out stakes for sellers. From a buyer’s perspective, they’re seeing new opportunities everywhere and if they want to strike this is the time to do it. It’s hopefully a perfect storm.”