Sydney’s high-price property market fuelling social divide: Douglas Driscoll
GUEST OBSERVER
Sydney’s white hot property market has defied expert predictions, with median house prices edging close to $1 million as growth and competition accelerates*. Sydney’s market imbalance – the divide between investors and owner-occupiers – is spurring a social divide between the have not’s and the have more’s.
We have a situation where owner-occupiers are being phased-out as house prices hike. Investors are saturating the market and expanding their property portfolios while first home buyers are struggling to get a foot in the door.
Of those first time buyers that do successfully buy, many can’t afford to move into their property and are stuck living in a rental. This is concerning, in so far that lending conditions have played a role in this dilemma.
There is also growing separation within the investment community. We have one group of investors that are more mature and astute, while others appear less sophisticated, taking on too much debt and lacking a long term investment strategy. This latter group are more likely to negatively gear their property; but if the market takes a turn and interest rates increase, these investors could face loan repayment difficulties if they’ve given themselves only a small financial buffer.
In December 2014, the Australian Prudential Regulation Authority (APRA) outlined guidelines to lending institutions on steps to reinforce mortgage lending practices**. One of these included requiring investors to pay higher deposits. I welcome this guideline. It is arguably too easy for investors, especially less sophisticated investors, to be approved low rate loans. While I actively encourage property investment, the current ratio is out of kilter, and this will inevitably lead to negative ramifications should nothing change. Not only are some investors at risk of being overconfident, they are snapping up properties that are ideal for first home buyers.
Greater lending prudence is urgently needed. We need incentives that assist Sydney’s first home buyers in entering the market so that they can physically live in their new dwelling, such as fixed, low rate, new home owner mortgages. Tighter regulations for investors are also necessary. I believe investors should pay up to 20% investment deposits. These two measures would at least be a step forward in helping redress the balance.
The influx of foreign investors also doesn’t appear to show signs of slowing down. The Government should seriously consider putting a cap on the number of properties that a foreign buyer can purchase within a new development. Right now, foreign buyers are snapping up development properties in droves, and before the first slab of concrete hits the ground. Australians are also becoming increasingly adaptive to buying off-the-plan, but right now, it’s a case of slim pickings. We need to ensure that there is a residual amount of stock available for local buyers.
The time to act is now. Sydney’s housing market is robust, but when you peel back the layers, there are several issues warranting address, and the market imbalance is a pressing issue. If left untended, the consequences could be significant.
DOUGLAS DRISCOLL is CEO of real estate agency Starr Partners.
*Latest monthly indices by CoreLogic shows the median value of Sydney house prices is $949,800, as at 31 May, 2015. See: https://www.corelogic.com.au/research/monthly-indices.html
**Please click here to read a media release on APRA’s guidelines on residential mortgage lending practices: https://www.apra.gov.au/mediareleases/pages/14_30.aspx