John McGrath - Locals Regain Confidence As Foreign Buyers Retreat
Many properties are selling within two weeks, indicating strong demand is still there, said John McGrath, founder of McGrath Estate Agents.
Australia now has a roadmap out of Covid-19, with social restrictions eased last week in stage one of a three-stage process and the re-commencement of opens and on-site auctions across the country.
Australia has done exceptionally well in managing the virus, with an anticipated six months of hibernation reduced to two.
If all goes well and new cases of Covid-19 remain low, the Federal Government wants to start Stage Two in June and Stage Three in July, subject to some variances amongst the states and territories.
This is giving people new confidence in the property market.
We saw an example of this on the first Saturday that opens and on-site auctions were back in NSW.
Sydney had an auction clearance rate of 70 per cent that day - the highest result since mid-March before opens and on-site auctions were banned.
It was an immediate and impressive bounce-back.
Across the country, new CoreLogic data shows fewer properties are being withdrawn and more are selling at auction, indicating owners are feeling more confident about proceeding to auction instead of selling prior.
Leading indicators suggest we are about to get a material increase in listing numbers next month as COVID-19 restrictions ease up.
Many of our clients are choosing to go to market now whilst listing levels are low; and a huge number are selling within two weeks of launch, which indicates strong demand is still there.
Prices in most markets we’re working in have held up exceptionally well. In many areas, we’ve seen almost no deterioration in values, especially for sought-after properties.
Whilst locals are feeling more confident, many foreigners are continuing to avoid Australian residential property for investment due to hefty application fees and rising state taxes, according to the newly released Foreign Investment Review Board report for FY2019.
International investment in Australian residential real estate peaked in FY2016 at $72.4 billion worth of approvals. Last year, approvals totalled $14.8 billion.
In FY2016, there were 33,258 approvals to buy new homes or vacant land, which are the only types of property that foreign residents can purchase for investment. In FY2019, there were 5,770. That’s a massive drop.
This is partly due to tighter capital controls in China, resulting in much less outbound investment since 2016.
China was our biggest real estate investor for several years but today, the US is No 1 followed by Canada, Singapore, Hong Kong and then China (commercial/residential combined).
The other major reasons for the decline are of our own making and completely unnecessary.
The report plainly states that application fees (introduced in 2015) and increases in state taxes and foreign resident stamp duty (introduced in 2016) are dissuading investment.
I have always been critical of the taxes, as I believe a deep global market is in the interests of all Australians.
Australia was proven to be a safe harbour for investment during the GFC and now, once again, we are a stand-out success story in our political and economic management of another global event.
This should encourage investors to look to Australia again in the years ahead once Covid-19 is over.
We need to get rid of these taxes and once again put out the welcome mat for foreign investment.
See you next week. JM
This article originally appeared in The Real Estate Conversation (May 18, 2020)