Why off the plan can be a deadly market: Robert Simeon

It never ceases to amaze me just how little some “property experts” actually know about real estate machinations to the point they constantly make fools of themselves with dumb commentaries.

For example, one commentator earlier this week declared on Twitter “Auction clearance rates crumbling Melbourne 66.3% 2yr low Sydney another crash just 57.5% 3yr low” – well, that may be true as west of Sydney is performing badly. I then reminded him that I thought he is the worst property commentator in Australia. Last week, Sydney’s lower north shore recorded a bullish 80.4 % clearance rate up from 76.6 % the previous week – of course this was not mentioned.

It is also worth mentioning just like clockwork as soon as we hit the Melbourne Cup each year the market starts easing off which is exactly what we are presently witnessing – buyers are tired. Having said that, we will see property sales recorded right up to Christmas and what we are presently witnessing is no different to last year, the year before that and so on.

The common denominator is that we are seeing fewer properties on the market. In 2013 Mosman had 100 or more houses on the market in a given week on 33 occasions, in 2014 Mosman could only break the 100 mark on just 11 occasions. In 2015 it never made it to 100 with the highest being on March 12 with 84 and the lowest on July 2 with 42.

There are points that we need to make about many Sydney markets. Firstly, with Chinese buyers we have only just seen the “tip of the iceberg” where we expect in 2016 and beyond that they will be the main driving force behind Sydney property prices. We can also expect that the Foreign Investment Review Board (FIRB) and Australian Taxation Office (ATO) will be pushed to the limit with overseas buying applications.

Six weeks ago I suggested that we were hearing that many investors both local and overseas were getting very nervous and now we hear that one in three off – the – plan buyers are in trouble. This is a major problem for Sydney’s newly created “investor market” as if these properties were to flood the markets prices would capitulate.

It will be most interesting going into 2016 to watch what strategy developers, and more particularly the banks funding these developments, decide to adopt. Will this see the Australian Prudential Regulation Authority (APRA) forced into relaxing the newly introduced LVR’s? The off – the – plan feeding frenzy saw entire developments sold in a minimum of hours. Well I predict it will take months and months to see these properties find new owners. Will the developers offload apartments to parties that are already owners at discounted prices? That would be a sensible option to avoiding adverse publicity.

How many properties will the ATO force back onto the market in the form of Divestment Orders for parties that acquired real estate illegally? If this is as big as some believe (myself included) the Sydney property markets could not sustain these two forces combined – Divestment Orders and Off – The – Plan purchases.

We do need to be clear here in that the newly created “investors’ market” should not be confused with the homeowner markets – although some areas that contain these newly created high density developments will naturally affect the homeowner markets.

The absolute no-brainer here is when the Rudd government moved the ratio for overseas buyers buying off – the – plan from 50 % to 100 % in December 2008. This needs to be reduced back to 50 % as a matter of urgency.

Strange isn’t it how some want to bellow about clearance rates and others want to look at our property market machinations in greater detail. I know what I find the more interesting to discuss.

Historically when property markets start correcting then fewer properties go to public auction. Makes one ponder what some commentators would then be left to bellow about?

MOSMAN – 2088

• Number of houses on the market this time last year – 114

• Number of houses on the market last week – 74

• Number of houses on the market this week – 65

• Number of apartments on the market this time last year – 76

• Number of apartments on the market last week – 71

• Number of apartments on the market this week – 60

CREMORNE – 2090

• Number of houses on the market this time last year – 14

• Number of houses on the market last week – 13

• Number of houses on the market this week – 15

• Number of apartments on the market this time last year – 31

• Number of apartments on the market last week – 16

• Number of apartments on the market this week – 18

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 10

• Number of houses on the market last week – 8

•Number of houses on the market this week – 8

• Number of apartments on the market this time last year– 42

• Number of apartments on the market last week – 36

*Number of apartments on the market this week – 33

 ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.