The new 'P' in property is perspective
If one was looking for a single word that is missing from the ongoing property debate, look no further than 'perspective'.
Some are looking at the property market from a perspective that has lead them to a conclusion which is totally and completely wrong.
Investors have got it completely right given (in the case of Sydney) we are suffering from a chronic undersupply which explains why the vacancy rate in a 10 kilometre radius from the CBD has sat below 2% for the best part of a decade.
Never before have we seen a better time to convene an inquiry into the Australian real estate markets because nobody has an accurate perspective as to what is actually happening. Earlier this year I was one of the first to write that something was not right with the influx of overseas buyers.
This brought about an inquiry (that is still going) although it has exposed the Australian Foreign Investment Board (FIRB) to be in total disarray.
Last week, Federal MP Kelly O'Dwyer told ABC Lateline:
"What we've found out though, through the evidence that our committee has received, is that these rules have simply not been enforced through prosecution since 2006 by the FIRB. I think there has been a failure of leadership of the FIRB on this. I think they have dropped the ball. I think if we have rules in place, those rules need to be properly enforced. That is the only way we can give confidence to the Australian people that our foreign investment framework's working as it should. So we would be looking to tighten up exactly what occurs in terms of enforcement penalties that can be applied, but also to make sure that FIRB is doing its job."
Well it's very clear that FIRB have not been doing their job, so in the meantime Ms O'Dwyer should be introducing a temporary ban on all overseas purchases until such time that the government can fully determine how big this matter is.
In my opinion there is no better person qualified to chair the inquiry than Bill Moss who is a former Macquarie Group banker and head of property. Speaking to The Weekend Australian, he said:
"This is the first (property) cycle we've seen where there's a deregulated global market,where capital is free to flow from Asia to Australia. We have a free floating dollar, equity makers are global and now our residential markets are going the same way."
The major concern in Australia is that nobody knows just how many properties have been acquired given nobody has a perspective as to the exact number.
Although, negative gearing presents a much bigger problem in the Australian property markets than overseas investors.
Another person who must be appointed to an inquiry is Saul Eslake, who this week called on Canberra to put an end to negative gearing for new investors as the best way to dampen frothy property markets in Sydney and Melbourne.
It should be noted that he referred to them as 'frothy' not a 'bubble'. He accepts that it is not politically feasible to abolish negative gearing because around 15%of voters are currently taking advantage of negative gearing – which explains why no politician should participate in the inquiry given they have vested interests.
Australian investors are smart and can sense a change to the property tax landscape in Australia, which I pointed out last week.
It is important to note the recommended measures are nothing more than temporary until such time that the government can get a correct perspective on the Australian property markets.
Bill Moss went on to say in his interview that our housing markets were better tackled at a state or local government level, with the federal government or the Reserve Bank of Australia's (RBA) macro prudential tools such as restricting how much banks can lend to investors. "Rather than react to what's happening, what the government needs to do is understand what is going to happen."
The interview keeps getting better, when he commented that "governments should look how to make money from a real estate bubble."
In my opinion, overseas buyers should be paying a much higher Stamp Duty and a Vacancy Tax for all properties where the owners decide to landbank by locking them up. All these taxes should be flowing into new infrastructure strategies.
The problem is that governments have neither perspective nor understanding about real estate machinations. So they need to establish an inquiry to better understand what exactly is going on as against merely flying from the seats of their pants.
