April 28, 2016

Daily Scot: A Tumble in Sydney

Could the measures (on foreign ownership) in Australia be contributing to the slowing in Sydney Real Estate?

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Sydney

The median price of homes in some Sydney suburbs which broke $1 million in the recent boom are now tumbling as the housing market cools.

According to Domain Group’s March 2016 house price data, at least 11 suburbs in Sydney had their median house price fall below $1 million from September to March. …

“The nouveau riche suburbs are having to recalibrate their mindset of having a million-dollar median,” Domain Group senior economic Andrew Wilson said noting that the decline in million dollar suburbs would most likely continue.

Recent data shows house prices in Sydney are pulling back up with a median house price of $807,500 and median unit price of $665,000.

The property boom has been fuelled by record-low interest rates and an influx of foreign buyers encouraged by the falling Australian dollar over recent years.

 

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  1. Your question poses a hypothesis worth testing. Although the end of the summary notes that changes to interest rates and the value of the Australian dollar relative to other currencies are also likely factors, it would be interesting to isolate the impact of foreign ownership fees that have been imposed in recent years. If this single factor could be proven to have a reducing effect on prices, I’d cede defeat and quit giving you so much grief about it. That alone has to be worth 6 months of your time.

    1. The Vancouver market is decoupled from Currency or interest rates. The Yuan has gone down 12.7% in 3 months against the Canadian dollar, a huge move. Yet real estate here has going parabolic over that time period, i.e. Nelson Street deal, etc. The Chinese are scrambling to get their money out and Canada is the easiest play.

      http://finance.yahoo.com/echarts?s=CNYCAD%3DX+Interactive#{“range”:”6mo”,”allowChartStacking”:true}

      1. Unless you’re talking about all of the real estate transactions finalized with suitcases full of cash, no market (even Vancouver’s) is decoupled from interest rates. So long as we rely on banks to finance these large purchases on our behalf, the interest rates are very much in play.

        But again, the question isn’t whether demand from Chinese buyers is a big factor in rising prices or not. It probably is. There are a lot of Chinese people and Vancouver is not a big place. The question is whether the imposition of some additional fee on foreign buyers will in turn affect the direction of median prices. This has not been proven.

        I will grant you that it is telling that the provincial government has been reluctant to impose such a fee; perhaps out of fear that it may do just that. But to be equally fair, they make a lot of policy decision without thought to evidence, data, or reality.

  2. I will await quantifiable proof that foreign money / ownership alone will result in the majority factor causing soaring prices over the last 16 years. A lot of journalistic dis-integrity has been invested in this narrative, a narrative that so cavalierly dismisses (often in only one line) land use, supply / demand, regional attractiveness and amenities, and interest rates.

    So far the Aussie example indicates a change of less than 20% under last year’s prices, and that’s no doubt after a decade+ orders of magnitude increase in prices. There is a long, long ways to go to cancel out the 500+ % rise in detached home prices here since 2000, so long in fact that people like me have concluded years ago that the standard lot with a detached home is obsolete in the Metro, and less expensive alternatives have to come on stream someday.

  3. It’s great to see the actions Australia has taken to deter foreign ownership is bearing fruit. Would that we had such bold and decisive leaders here.

    It boggles the mind that in 2016 there are still people here that desperately twist and turn looking for some other explanation for our ludicrously overpriced market. The only metric you need to look at is local incomes vs prices. It’s not rocket science.

    1. Bob, there is no proof that Australia’s actions against foreign ownership have resulted in falling median house prices. None whatsoever. Zero. Just because two things happen in sequence, does not mean one thing caused the other to happen. Testing your hypothesis and then proving or disproving it is also not rocket science. It is just science.

      1. Australia is the closest to a direct comparison as you will find. Why are you so anxious not to have the problem pinned squarely where it belongs?

      2. Seriously ? Generally, when you raise the price of s.th. less of it will be bought, be it iPhones, cars, food or houses. So a 5% land transfer tax will deter less people than a 25% surcharge.

  4. Unsure where the focus on ‘action against foreign ownership’ came from but the rules you are probably refering to apply in Victoria not NSW (Sydney).
    No one has produced any compelling evidence that overseas buyers are the crux of the issues (although definitely one factor).
    Our population grows at ~2% a year and we house most new arrival in two places (Sydney and Melbourne); personally I believe that is the key driver along with our ridiculous tax system

  5. Have shaken my head and read the articles.

    The evidence states that housing prices has stopped growing and slightly declined primarily in cities where they have experienced massive growth in recent years. Even house-crazed, negatively geared Australians have a point where the numbers don’t stack up.

    Yes, it would be logical that the Victorian law changes around foreign investors would have an impact yet they are growing more strongly than Sydney.

    Investor growth has slowed much more than foreign investment primarily due to stricter lending requirements.

    If the evidence backed up the claim that “Australia’s actions against foreign ownership have resulted in falling median house prices” then Victorian house prices would be declining while all other states would reman unchanged. The are not. It doesn’t mean it’s nota factor, tehre is just no evidence to support the claim….

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