As Australian banks tighten lending conditions for foreign property investors, talk turns to what this really means for the Aussie property market and its local buyers. And it's not as clear cut as you would expect.
The changes made by the big four banks – ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac – are part of a broader scrutiny of foreign buying of Australian homes, which contributed to the 55 per cent jump in home prices across the nation’s capital cities in the past seven years.
At the same time, Chinese banks have made it more difficult to move money out of the country to purchase property.
There is little doubt that foreign investment has buoyed certain segments of the Aussie property market, particularly the new and off the plan properties in the CBDs of Melbourne, Brisbane and to a lesser extent Sydney.
Some offshore buyers have put down 20 per cent deposit on these types of investments, others a little more hoping to obtain funding for the balance of their purchase on completion of the project.
Unfortunately many of these investors will be disappointed as most local banks will now no longer lend them funds to complete their purchase, while other investors will find the value of their properties on completion will be significantly less than the contract price, Michael Yardney, director of Metropole Property Strategists explained.
This means they will have to come up with more funds as banks will only lend on valuations, not on contract prices.
“This will be exacerbated by the fact that some investors will have to offload their properties at any price they can get achieve and this will devalue the other properties in their complex,” Yardney told Yahoo7 Finance.
“Some will hope to walk away from their contracts and lose their deposit, but developers will have the right to on sell the units and sue the defaulting purchaser at for their loss.”
Coupled with the fact there is a current looming oversupply of inner-city apartments, times look tough for off-the-plan housing projects.
Yardney expects that the decline in foreign buyer activity is likely true cause a significant downturn in the off the plan sub segment of our capital city property markets.
Cameron Kusher senior research analyst at Corelogic RP Data agreed, pointing out that most large apartment projects that are locally funded need at least half – often closer to 70 per cent – of units sold before construction can begin.
“Fewer foreign buyers may see some projects unable to go ahead however, that wouldn’t necessarily be a bad thing given we already have a record-high pipeline of apartment projects and are increasingly seeing a disparity between the growth in house and unit values (particularly in Melbourne and Brisbane),” he told Yahoo7 Finance.
As for what all this means for local Aussies looking to buy a new home, the verdict is unclear.
Kusher said that if these changes lead to a slowing of overseas demand, it could be a ‘boon’ for first-time homebuyers.
“First home buyers have struggled to compete with domestic investors and overseas buyers over recent year,” he said.
“Lenders have already tightened lending criteria for local investors and if there was to be a slowing of foreign investment it could pave the way for some additional first home buyers to enter the market.”
But Yardney isn’t as convinced.
“Falling prices of the new and off-the-plan properties are unlikely to be of great benefit to Australian first home buyers who are currently having difficulty with affordability, as in general most of these dwellings are not the size or style that would suit first home buyers,” he said.
“Many are poorly finished, in large monolith high-rise blocks with little scarcity and poor amenitys.”