The Australian housing market is in "chaos"! Is there still a "second half" for the off-plan?
For example, in 2004, in Huilongguan on the Fifth Ring Road in Beijing, more than 40 people bought a house of less than 13 square meters. It sold more than 300 million in 9 years. In theory, in 260 years, you sleep every day, but the real estate netted you more than XNUMX million.
More and more people hope that housing prices in major Australian cities can be so "competitive" and help people achieve the leap from "after-tax income" to "after-sleep income".
Indeed, since the 60s, housing prices in Australia have risen 65 times over a period of 55 years. Between 1961 and 2016, the cumulative increase in Australian house prices reached 6556%, an average annual increase of 8.1%. Excluding inflation, Australia's housing price growth rate ranks sixth in the world.
But never think that the transient prosperity will last for a hundred years, and don’t forget the saying that “the feast must be scattered” for momentary joy.
More than a year has passed since the Australian housing market peaked in 2017. In just one year, the Australian real estate market has turned. In Sydney and Melbourne, auction turnover rates have fallen to their lowest levels in years. At the same time, the number of housing loans is also decreasing, which to a large extent reflects that the loan conditions for investors have become more and more demanding.
So, can the phenomenon of the sharp increase in housing prices in Australia over the past 55 years be repeated? At this moment, how should investors respond?
XNUMX. At this node, should you enter the venue to buy high-rise apartments or "off-plans"
XNUMX. Keep calm and seek advice from insiders wisely
UBS (UBS) economists expect Australian house prices to fall by more than 5% in the coming year.
HSBC economists Paul Bloxham and Daniel Smith wrote in a report that the real estate boom in Australia is finally over. Especially the largest and most expensive markets in Sydney and Melbourne, the cooling rate is faster than previously expected. The housing market in other cities generally continues to be sluggish.
When predicting the Australian real estate market, the chief economist of Auberge Capital said that Sydney and Melbourne house prices will fall by about 5% this year, and there is a risk of continued decline in the coming year, but there is no possibility of a plunge.
According to the Sydney Morning Herald, the total number of houses in the Australian real estate market has been increasing recently, and houses have stayed on the market for longer than before. In addition, people’s views on the housing market have changed, reflecting the fact that housing prices have risen. Began to slow down. Led by Sydney and Melbourne, Australian house prices are now falling, which is somewhat unexpected, because the performance of the real estate markets in these two cities has been better than the national average in recent years.
According to data from real estate consulting firm CoreLogic, residential prices in Australia's eight capital cities fell by 8% on a weighted average last month, marking the sixth consecutive month of decline. This is the first time since 0.3 that the annual housing price increase rate has shown a negative value.
SQM does not expect a general housing price drop this year. However, it has proposed that the macro-control agency, the Australian Prudential Regulation Agency (APRA), has strengthened the supervision of the mortgage market, which has increased the pressure on the domestic real estate market.
It is reported that since 2014, APRA has introduced several measures aimed at reducing the risks in the mortgage market-investors and interest-only loans have been the main focus of attention. As a result, the number of investor loans and interest-only loans from major banks has fallen sharply, and experts believe that this will not see a large-scale recovery in the short term.
Although APRA lifted restrictions on investor loans on April 4, economists at UBS believe that this “means that the tightening of lending standards is faster than our outlook on the basic situation”, and APRA It is preparing to introduce more lasting measures in the market, focusing on responsible lending. "This increases the risk of a major negative impact on housing and the economy."
Declining housing demand and increasing housing supply have turned many suburbs of Sydney into buyer’s markets. The new data reveals the regions where buyers can get the best prices. Sydney homebuyers have a once-in-a-year opportunity to obtain better house purchase prices.
Therefore, buyers have more real estate options and fewer competitors to buy real estate, so that they can negotiate a price reduction. Since the global financial crisis nearly 10 years ago, market conditions have never been so favorable for buyers.
According to data from realestate.com.au, buyers have a particular advantage in bargaining in Mays Hill near Parramatta and Sydney Olympic Park. Due to the large number of apartment buildings being built in these two districts, and the supply of housing is very sufficient, the Australian real estate network has attracted many buyers from Sydney.
In areas within a 10 km radius of the Sydney CBD, Wolli Creek and Zetland, the hotspots for housing construction, have the lowest real estate demand. In the past year, the median price of properties in most of these suburbs has not risen or even fallen.
A recent report released by Moody's Investors Service showed that the Melbourne real estate market has also been widely transformed into a buyer's market. Sellers who are willing to accept this market change will sell at a good price, but stick to 2017. Sellers of annual house prices need to wait longer.
Buying an off-plan apartment may sound attractive, but in fact, this is also the preferred way for Chinese buyers to invest in real estate in Australia. Buyers get a brand new apartment, local buyers can also get first home buyer subsidies and tax incentives, and provide additional incentives.
Purchasing off-plan houses means buying apartments or houses that have not yet been built. They are either under construction or just in the planning stage. A 10% deposit is usually required when signing the contract, and the remaining part is paid when the apartment is completed. There may be several years between development and completion. This may be beneficial for some buyers because they have more time to save money, but it also means that your deposit will be tied up for several years.
The financial situation of the developer is also worth investigating.
It is very important to know whether the developer has the funds for construction. Bank terms will stipulate that a certain number of houses need to be sold in the pre-sale before they can be approved for loans, so they need to have a specific number. Larger developers often manage construction themselves, while smaller companies usually hire builders. The developer may be the land owner, and then they will hire a builder to carry out the construction. So do the same research on construction companies.
Buyers should hire lawyers with off-plan property experience or property transferees to investigate the contract.
Because the contract may include a sunset clause, if the building is not completed within a certain time frame, the developer or buyer can cancel the contract. In this case, buyers either terminate the contract or pay tens of thousands more to keep the house, although the recent reforms in NSW provide buyers with more protection.
Off-plan housing contracts usually allow 5% or 10% errors in finished products, while developers often measure apartments from the outside, including 50% of shared walls and 100% of internal walls, which means that the actual available space may be smaller than the published figure . In rare cases, a one-bedroom apartment may eventually become a single room with a guest bedroom.
Even if the loan application is pre-approved, the buyer has to take care of the tightening of the loan standard during the purchase of the off-plan property and the final settlement, and even the loan institution's valuation after the completion of the house is lower than your purchase price. In this case, the buyer has to Make up the difference, or risk losing the deposit.
Areas where new apartments are concentrated may face downward pressure on prices, but apartments with unique characteristics may have strong growth prospects.
Characteristic low-rise buildings, whether they are distinctive in appearance or close to the river, are still very popular. Landscaping also plays an important role in the image of buildings.
In addition, to find out whether an apartment is worth the money, you have to study past sales and other new developments, and compare similar properties built a year or two ago.
Although the price of an off-plan apartment is fixed, it can still be bargained, especially in the early stages of sales. Banks may want to see 20 pre-sales, which often means that these 20 houses will be sold at very reasonable prices. If the developer refuses to make a price cut, it can ask to improve the quality of the completion or provide additional facilities, such as no carpets and wooden floors. "The best time to bargain is before they start construction. Because they are eager to get buyers to sign before the ground breaks."
The risk of buying off-plan apartments is high, and buyers should do in-depth research before buying to minimize the risk.
Hire a lawyer to search for developer information on the Australian Securities and Investments Commission (ASIC) website and check the developer’s credit history. If your investment reaches 50, this little work is totally worth it.
In addition, for buyers who purchase off-plan luxury apartments, they must be prepared to pay higher property management fees and a maintenance fund of thousands of Australian dollars a year.
The costs incurred in the maintenance of public facilities such as lights to elevators in the apartment are usually incurred after the warranty period (1 year after delivery). For many unaware buyers, this fee is often a considerable expense.
Many real estates are often part of the developer’s warranty period for the first year after delivery, so many costs will not be reflected during this period. Once the warranty period expires, the owners of these real estates will find that the annual fee to be paid increases significantly.
Whether or not to buy uncompleted flats has nothing to do with whether the market is in a "cooling-off period". Research and careful consideration are "compulsory courses" for buyers anyway.
Everyone knows that real estate agents will use creative talent to discuss their listings, but buyers should not be confused by these phrases.
The real meaning of common words in real estate:
Nothing in this world is free, especially real estate investment advice in the real estate market. As a real estate investor, you have to pay tuition, whether it is from the market or from a trusted consultant who saves you market costs.
Trusted consultants will put forward their suggestions based on your personal situation and warn you of risks and rewards. Their suggestions are not biased towards any property, product or service for sale.
As a home buyer, you should first ask the person who advises you how to get paid, and their answers will reveal many things. If they provide free consultation, or if they are paid by a third party (such as a developer or property supplier), then their advice is not independent.
The consultant hired should have the appropriate qualifications, be a member of an Australian real estate recognized organization, such as the Property Investment Professionals of Australia, and be an investor himself. They not only have a thorough understanding of real estate, but also understand the loan, economic and tax system. But professional advice does require higher fees; the fees paid by real estate strategists or buyer agents can be expensive.
When the surroundings are full of free consultations from real estate agents (remunerated by sellers), or marketers of off-plan apartments and landed houses (remunerated from developers). Buyers need to think twice.
But the author personally believes that this wave of decline will not last long. In the past ten years, real estate has developed into a pillar industry in Australia. The entire industrial chain has not only made a significant contribution to maintaining high GDP growth, but also solved the employment problem of tens of millions of people. The city’s “hematopoietic function” is insufficient, and only real estate can be used to drive economic development. The development of real estate is the leader of the city. As long as the real estate falls, the influence will be huge.
In Australia, real estate is also the main source of government revenue. If this revenue is lacking, the government will be embarrassed in its pockets. The reduction in revenue will affect the government's administrative power and power. From this point of view, the healthy and sustainable development of the Australian real estate market is also what the government is willing to see.
Regardless of whether it is buying stocks or buying houses, they all follow the inertia of buying up and not buying down. As long as house prices fall, many people will think that they will definitely fall again. On the contrary, if they rise, many people will follow suit. In fact, as a special commodity, the house also has to follow certain economic laws; there is no commodity that only rises and does not fall, and there is no commodity that only falls but does not rise.
Reasonably choosing the real estate that best suits your needs is the eternal trump strategy.