The Sydney property conundrum: Robert Simeon

When Treasurer Joe Hockey announced the divestment order for Villa del Mare with fanfare and hoopla, we were left hanging on the words that there was a high expectation of more to come.

Well there have been no more ‘big’ announcements on that front which is not that big a surprise given their top end property infatuation will in all probability reveal no further indiscretions.

Of course we are now seeing a different acquisition scenario being painted with the Australian Crime Commission reportedly investigating Melbourne real estate agents with regard to foreign buyers laundering monies in the form of real estate acquisitions. Last December, I wrote Foreign buyer inquiry leaves many questions – “Of course it is just a mere coincidence that the Chinese government requested a bipartisan arrangement with the Australian government to process the identities of all Chinese buyers who purchase Australian real estate.”

At present China only permits a resident to transfer a maximum of US$50,000 per annum, so the current investigations simply add to the intrigue of how these supposed mystery funds end up on our shores? At the heart of the problem is just how the current and previous governments have been so hopeless in monitoring real estate transactions and that not only applies to residential but commercial and agricultural as well.

Whilst these inquiries are simply a distraction that quite possibly may lead to nothing the Sydney property market today faces an unprecedented challenge.

The latest data from the Reserve Bank of Australia (RBA) shows home lending is now at $1.43 trillion at the end of January – and steadily climbing. Following last week’s meeting of the RBA where the cash rate remained steady, RateCity calculated that the average standard variable home loan has dropped to 5.07% – which happens to be the lowest in 60 years.

Given the Sydney residential market continues to run amok it is worth noting that when we witnessed these markets previously in 2003 and 2010 the cash rate was rising yet this time around the cash rate is reducing. The Australian economy grew by 0.5% in the December quarter, to then post 2.5% growth for 2014. This week, ANZ chief economist Warren Hogan suggested that a third rate cut in 2015 may be required for the Australian economy.

Last week I read with interest comments made by David Murray, who is also heading – up the Abbott government’s financial systems inquiry. David Murray said: “It is a serious issue and if interest rates continue to fall, there will have to be prudential offsets to limit the risks in the housing market.”

The trouble as I see it at the moment is that we have “too many chiefs and not enough Indians” pontificating about just exactly what is the “best practice” to manage this property dilemma. For quite some time now the RBA have telegraphed their concerns and now we see the Australian Prudential Regulation Authority (APRA) being suggested as the likely weapon to closely look at loan to value ratios. The only problem with all this is that investors have become addicted to negative gearing so any action to slow them down would only increase their tax breaks.

I am a big fan of abolishing the blanket cash rate by then introducing individual suburb cash rates that would be determined by the RBA. Presently all the major lenders analyse data daily on the suburb trends so it would make sense that all new lending be determined by the individual strength of that suburb when applying the suburb cash rate.

Of course the higher the rate for an investor the higher the negative gearing so the Abbott government needs to look at just how many properties can an individual investor have in a property portfolio? We have anecdotal evidence that investors have smashed first home buyers when they are competing against each other – with the investors winning in nearly every instance.

It has been well documented that David Murray is not a fan of negative gearing, which is stated in his report that still sits with the Treasurer Joe Hockey – so don’t expect a release anytime soon.On top of that the government is now pursuing releasing superannuation to first home buyers – which is a dumb idea. How about releasing the Murray Inquiry and let’s see what recommendations are contained within that report. I’ll guarantee a superannuation release does not crack a mention.

In the meantime we can expect the Sydney property juggernaut to surpass all previous records and the federal government to do next to nothing about it due to their galvanisation of popularity polls.

The government will be focused on media distractions as against working to correct the imbalances that are so obvious and confronting to Australia’s residential property markets.