Joe Hockey plans to introduce restrictions on foreign investment in Australia. However, the Property Council of Australia say new legislation won’t improve housing affordability.
The Australian federal government are aiming to curb foreign housing investment in Australia to reduce housing price rises. Under new legislation, illegal foreign real estate transactions will incur a fine of $135,000 or individual offenders could face a three year jail term. Companies, on the other hand, who break the rules may be fined up to $675,000. In addition to these changes, the government will be able to force illegal investors to sell their property, with the government then being able to take any capital gains made by the offender as a result of the sale.
The Property Council of Australia said that while the new law would enhance the operation of foreign investment, it will not improve housing affordability. This is due to illegal foreign investment not being the main contributing factor to housing affordability in Australia. In order to improve housing affordability the government needs to focus on abolishing stamp duty and increasing the supply of housing across the nation.
At present, the Property Council of Australia is calling for reforms to tax and planning regulations as they feel that these are the only meaningful solutions to tackling housing affordability in the future. Whether the government will respond to their request remains to be seen.
According to a recent survey on housing affordability approximately one third of women were cautious about buying a home due to affordability, whereas only a quarter of men felt this was a problem. Queenslanders were said to be the most concerned about housing affordability in Australia, closely followed by those who resided in New South Wales and Victoria.
The greatest concerns for Australian home buyers in terms of housing affordability is finding a suitable property that they can afford, getting an affordable home loan, and possible rises in interest rates reducing their ability to maintain home loan repayments in the future. Older buyers were said to be worried about ongoing property costs, while younger buyers were more concerned with finding a home that was affordable and located in an area that was suitable to their requirements.
According to real estate experts and property investment gurus the price of property is typically pushed up by demand, which has been escalated due to home loan interest rates being the lowest they’ve been historically for decades. As a result, many individuals are keen to start to build their property investment portfolio or are looking to build on their existing property portfolios. This, in turn, is pushing up property prices in areas such as Sydney and Melbourne.
Bank exposure to investor loans was 19 percent higher in June when compared to figures 12-months earlier. According to APRA owner-occupier home loans grew at just 2.5 percent over the year to June. In June, banks that had loan values of over $1 billion had $507.4 billion in investment loans compared to $426 billion in June 2014.
Interest-only loans had the greatest growth, which concerned regulators the most. These loans grew by more than 20 percent to $512 billion, which accounted for 40 percent of $1.3 trillion in home loan debt compared to 35 percent in June 2014. These were mostly investment based home loans.
However, the recent Australian share market crash and changes that the Australian Prudential Regulation Authority (APRA) have made to lending are seeing property investment slow its pace. These changes may reduce property demand in the future, which may marginally increase housing affordability.
Fluctuation in the ASX and the fall of Chinese shares, which wiped trillions from the value of Australian markets, has led to a number of investors having to sell their properties due to share market losses.
According to real estate investment agencies, some younger investors had been caught by the share market plunge, and would have to sell their investment property to cover losses they had incurred with shares. These were mostly inexperienced investors who had not suffered a share market crash before.
Many overseas property investors who buy in Australia are said to prefer buying property rather than holding cash or shares. These property investors, especially the Chinese, had started to sell off their ASX shares before the crash. This was mainly due to the fall in value of the Australian dollar.
The correction in the ASX was likely to make overseas investors cautious about investing in Australian property for some time as historically this has been the trend. Plus, changes to Australian lending criteria and foreign investment policy mean that it will be harder for foreign investors to buy property in Australia.
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