Settlement defaults to increase from low occurance in OTP housing market: CBRE
Foreign investment played a key role in underpinning demand for new housing stock in 2016, according to CBRE’s latest report.
That said, overall levels of offshore capital for residential investment eased in 2016 from the very high levels experienced in 2015, the agency noted.
Higher stamp duties applicable to source local debt, tighter enforcement of monetary caps on Chinese capital outflows and general concerns about apartment oversupply contributed to softer foreign investment in 2016.
Foreign investment sales turnover for the Sydney development site market declined by 50% in the 12 months to June 2016.
Despite the slowdown, Australia remains an attractive long-term proposition for foreign investment.
Foreign buyers, although motivated by rental returns, value other factors such as political stability, personal safety, education and low air pollution when assessing investment locations and Australia ranks very highly on these measures.
Although 2016 saw a combination of factors that could impede demand from foreign investors, we are not forecasting a material jump in settlement defaults for off-the-plan apartments.
Settlement default has traditionally been low in Australia (sub-2 percent).
A tougher lending environment makes it likely that settlement periods will be extended and some increase in default will occur.
But the emergence of new lenders absorbing foreign buyer debt demand and the substantial cost of default (i.e. forgoing deposits) will limit the number of buyers defaulting in settlement.
Furthermore, conditions in domestic labour markets are unlikely to deteriorate to the extent that settlement defaults will increase markedly amongst domestic buyers.