Economic Insights by Clifford Bennett

Budget Blues Sing-a-Long

Property Club Economic Highlights

Quite a few changes in the Federal Budget regarding property this week. No one would argue against the help for first home buyers. Whether it is effectively taken up remains to be seen, but it should prove quite successful in the long term.

There a couple of things to be said about some of the other changes which may not have been heard before.

The big one, in terms of immediate impact on property values, is the proposal to place a limit of 50% on the number of properties foreign investors can purchase.

Tax Savings - Budget Blues Sing-A-Long

1. There are likely to be less of the joint China-Australia property developments which are 100% sold in to the Chinese marketplace.

Usually, at a housing and investment expo, all sold in one weekend. This was happening on a regular basis. The Chinese, seeing and knowing the huge demand all around them in their own cities, and the demand that constantly seems to exist for Australian property in particular, had no problems forking out for these only marketed in China properties.

The thing is, with a 50% foreign purchasers limit, such developments may come to a complete stop. What was already in the pipeline will be finished, so as to test the marketability of 50% China owned developments to the domestic market?

Less product coming to market, can only in the long run lead to higher property prices. It also means property gluts will be few and far between as we move forward. For Australian investors, this is actually a surprisingly good development.

2. Smaller developments will become highly sought-after by Chinese investors.

They are quite savvy investors, and will immediately recognise that to maintain the value of their investment, a high assurance of domestic investor/buyer interest will be necessary. A development of 6-12 apartments is more likely to be fully sold on the domestic half than say a 100-4000 apartment complex. Which is what they have been buying into.

So there will still be plenty of Chinese investors, but now they will increasingly be looking at the type of developments you, yourself, may have recently been interested in. Whereas what the Chinese were doing, was a something we read about, it is now likely to be more of a shoulder to shoulder affair entering smaller development projects.

As for some of the other changes, they will be at the margin in terms of impact. Mature property owners downsizing will be a factor, but not in a big way. It will immediately be more about Chinese investors appearing in the suburbs more often.

If you happen to speak the language, being a buyers agent on the ground visiting smaller projects, could be a lucrative affair.

In a nutshell, quality apartments are likely to be even more strongly bid going forward, than they have in the past.

Clifford Bennett