A Federal Government proposal to charge foreign buyers application fees each time they buy property in Australia is ‘tickling around the edges’ – and it won’t tackle the ‘seismic’ changes in Melbourne’s housing market.
Mal James of James Buyer Advocates in Melbourne says 50 to 75 per cent of properties on the books of some real estate agents are now being sold to overseas buyers. He says the latest Government proposal won’t slow the influx of international buyers snapping up properties in Melbourne.
“This has serious ramifications. In many cases, we are seeing local buyers almost giving up because the market has changed so dramatically,” says James.
“And it’s not just young homebuyers who are missing out. Middle-aged buyers and middle class Australians are also being priced out of the market. For people climbing the ladder, the only choice is to be pushed further and further away from the city and into the outer suburbs.”
James says the government proposal to charge foreign buyers a $5,000 application fee to buy property of less than $1 million, and $10,000 for every extra $1 million in the purchase price won’t have any impact on wealthy overseas investors. The proposed fees apply whether potential purchasers are successful or not.
“Do you really think a $10,000 or $20,000 fee is going to bother a Chinese buyer of a $3 million or $4 million home?” says James.
He cites the sale of a property in the Scotch Hill precinct this week as a prime example of the pressures created by overseas buyers. The five-bedroom home in Kembla Street sold before auction for $5.35 million. James says the seven bidders vying for the home were all of Asian background.
He says this pressure cooker effect has also been seen in Balwyn and North Balwyn where some property prices are now on a par with Bayside suburbs, such as Hampton. Only 10 years ago, Bayside prices were 50 per cent higher until the eastern suburbs began attracting Chinese and Indian buyers.
Policy changes in 2008 made it easier for overseas buyers to purchase property and were the start of the seismic shift, says James.
“We all loved it in 2008 because it kept us out of the poo GFC-wise. But now it’s significantly changing the game,” he says.
“Is it healthy to have a lot of money coming into a market segment which is distorting values significantly? When the rules changed in 2008 the dam was broken and it has never been patched up.
“There needs to be a fuller understanding of the problem. At the moment many young people, many middle class Australians and even upper class Australians are being priced out of their own markets. If you are an older person downsizing now, you’ve hit Tattslotto. You’ll dismiss what I’m saying because you are getting a huge windfall. But people climbing the property ladder are facing significant and very real problems.”
James also warns of land banking and its impacts on the natural housing cycle.
“Will these properties come back onto the market? Are we losing that natural cycle where people die, get divorced, have babies and trade onto the next property? If all these houses are taken out of the market, then the market is changed forever. That’s not too great an exaggeration. I can feel it,” he says.
“Let’s stop talking around the edges and let’s call a spade a spade.”
James advises local homebuyers to rethink their strategy in the face of strenuous competition from cashed-up international buyers.
“At the moment if you buy a block of land to bulldoze and put a new home on, you are going to pay a huge premium compared to what you would have payed a year or two ago. Are you prepared to do that and can you afford it?” he asks.
“If not, rethink your strategy. Think about what properties are not attractive to overseas buyers – and are those properties attractive to you? Do you want to have a lesser mortgage by marginally changing your requirements – or do you want to compete with the overseas buyers and have a huge mortgage?”