Concerns about upcoming Divestment Orders: Robert Simeon

It didn’t take long for some property commentators to start declaring that the Sydney market was crashing when last week clearance rates came in at 65.1%.

The fools have been released from the asylum when you closely scrutinise this data where Sydney consists of approximately 700 suburbs, so are they all crashing? I looked up Mosman’s clearance rate for last week and it came in at a respectable 87.5% which is hardly crashing as some would have you believe. Don’t get me wrong it is clear that the Sydney real estate market is correcting rather than crashing – this is not a bad thing either.

The problem for some is that intellectually they can’t differentiate between the strong investment market over the owner occupier market, with the investment market cooling at a much more rapid pace due to lending restrictions and consumer sentiment adjustments – which are long overdue.

Many consumers who are chasing investment properties should be quite concerned about what’s around the corner and I’m not referring to banks increasing their respective lending rates. The Reserve Bank of Australia (RBA) can stand aside for the moment because on Melbourne Cup day should it decide to lower the cash rate the major banks won’t be following suit with Westpac, CBA, NAB and ANZ hiking their rates just in the last week. As soon as one moves inevitably the others will all follow although it would be highly unlikely that Westpac will be the next to increase rates.

All eyes should now be on the Australian Taxation Office (ATO) who have now taken over the responsibility of being Australia’s property watchdog. In 39 days the amnesty period for illegal property acquisitions expires and then we will start to see how many have deliberately broken the laws by purchasing Australian real estate – my tip is this will be huge where we can expect 2016 to be the year of the Divestment Order.

This may surprise you that there is a much larger property investigation that will have a significant impact on Australia’s property industry. That being Student Visa Holders who are allowed to purchase a property whilst completing their tertiary studies on the proviso that when they have completed their degrees the subject property must then be sold. The only problem is that Australia’s Foreign Investment Review Board (FIRB) who are entrusted to monitor such acquisitions have never actually followed through so we now have no idea how many thousands of properties this includes.

To make matters worse on 18 December 2008, the Rudd Government changed the policy where Student Visa Holder residents in Australia are no longer subject to a $300,000 limit on the value of an established dwelling as their residence. This then saw some students acquiring multi – million dollar residences. Also temporary residents were not required to notify FIRB of any intended acquisitions for established dwellings that were to be their principal place of residence.

Again we are talking about thousands and thousands of transactions where many will now end up with Divestment Orders.

The RBA this week declared in its biannual Financial Stability Review that “Recent investigations by regulators have revealed that standards were somewhat weaker than had originally been thought.” In that case any significant increase in property volumes onto the market would see prices coming down as these are established properties, so unlike off–the–plan properties where 100% can be sold offshore to non-Australian residents.

We are now seeing the housing price growth at its slowest pace since 2012 – which explains why the ATO have a duty of care when they start issuing Divestment Orders. We can also expect to see many households fixing interest rates on their respective mortgages.

A positive sign for those renting, when last Friday the Australian Bureau of Statistics finally got around to updating Australia’s housing occupancy data (the last release was in 2013), the proportion of those renting has edged up to 31.4% with 63.4% of Australians renting being under 35. To further identify just how big the investment market for real estate in Australia is, 1.5 million households now own investment properties on top of their principal place of residence.

Whilst the finger is clearly pointed at negative gearing (I will address that next week) when it was introduced in the late 1990’s, approximately 40% of houses were owned outright with only 28% renting.

The issues are clear in that we have problems with policy making, and that requires urgent attention although this has not been helped with actual mortgage interest rates falling from 7.1% to 4.7% over the past five years.

Property is all about supply vs demand – supply is what we need to be paying closer attention to, so watch the ATO with great interest. Who would have ever thought the ATO would play a central position with Australia’s property markets.

MOSMAN – 2088

• Number of houses on the market this time last year – 104
• Number of houses on the market last week – 61

• Number of houses on the market this week – 64

• Number of apartments on the market this time last year – 65

• Number of apartments on the market last week – 59

• Number of apartments on the market this week – 60

CREMORNE – 2090

• Number of houses on the market this time last year – 19

• Number of houses on the market last week – 9

• Number of houses on the market this week – 10

• Number of apartments on the market this time last year – 32

• Number of apartments on the market last week – 23

• Number of apartments on the market this week – 22

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 7

• Number of houses on the market last week – 13

•Number of houses on the market this week – 10

• Number of apartments on the market this time last year– 51

• Number of apartments on the market last week – 32

*Number of apartments on the market this week – 33

ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.