It’s time for some very BIG property decisions: Robert Simeon

Kudos to the NSW government by becoming the first elected government in NSW to achieve a cash positive financial position – quite amazing that never before has this been achieved.

The words ‘debt free’ don’t exactly go hand in hand with governments these days as we have become too accustomed to the monetary phrases of debt and deficits.

NSW Treasurer Gladys Berejiklian confirmed this week that NSW would post a $4.7 billion surplus in 2015/16 which just so happens to be $1.3 billion more than predicted in the June budget just four months ago. Still a massive turnaround from 30 June 2015 when net debt sat at $5.5 billion to a $57 million surplus as at 30 June 2016.

No doubt reassuring for the government who pledged a further $20 billion in infrastructure at the 2015 election, which includes a second harbour crossing. Now to a big property decision which is the elephant in the room in the form of stamp duty. Sydney’s new market which is the tens of thousands of new apartments under construction which have handsomely rewarded the government in the form of stamp duty. There would be significant question marks over foreign purchasers completing once these projects are finished.

It is worth noting that the treasurer is expecting stamp duty growth of 4.4 per cent per annum over the next four years whilst also predicting stamp duty revenue would hit $8.9 billion in 2016/17. As to that prediction I offer just two words – Good Luck! 

Investors would be no doubt observing the recent commentary by the Reserve Bank of Australia (RBA) who noted “growth in rents is the slowest for decades”. So one then can only presume that the bait rent projections provided to the tens of thousands of off – the – plan buyers have next to no chance of coming to fruition? Furthermore, these rental projections play an intricate role in determining the amount of borrowings leveraged against each investor property.

According to realestate.com.au figures numbers of Chinese buyers looking to buy in Sydney have fallen by 9 per cent over the past twelve months. Many (including myself) expect these numbers to keep falling as a direct result of the NSW government’s recently introduced Foreign Investor Surcharge.

NSW Treasurer Gladys Berejiklian has announced that the June 21 NSW Budget will include the introduction of foreign investor surcharges on stamp duty and land tax on residential real estate.
The measures are expected to raise more than $1 billion over four years and will fund essential services across NSW. “These new measures will ensure NSW’s property market continues to be an attractive destination for international investors while making sure that we are able to fund vital services into the future,” Ms Berejiklian said.

This initiative has not gone down well with foreign investors. One only has to look at what happened to the foreign buyer tax in Vancouver which saw a very hot market transition almost immediately to a frozen market overnight once the 15 per cent tax was announced. For example, property prices collapsed 33 per cent in September from a year ago.

Now for some other very big questions that are being asked and answered within the real estate industry currently that do require special consideration.

When you look back at the history of real estate in Australia a distinct observation has been the popularity of real estate franchises. In 2016 we have seen the lowest volumes of stock levels ever seen before, for example this week in Mosman there are 32 houses for sale, in 2015 there were 49, in 2014 82 and in 2013 there were 119 houses on the market that week.

Now a franchise office that operates within the one allocated postcode simply can no longer survive on these reduced stock levels as salespeople will look for work with businesses that offer unlimited or much larger farming areas. There has also been heated discussions about franchise fees which are performance based much like income tax. The more you sell the larger the franchise fee – in 1994 we went over to a flat fee so many franchise offices are demanding that fee structure.

Somewhat ironic that stamp duty was a blessing in disguise for the NSW government’s finances yet it is the reason why fewer homes are now on the market as owners have opted to invest the amounts they would pay in stamp duty into renovations. This also means that the selling cycle changes will blow out significantly as home owners will stay much longer in the principal place of residence.

So from Christmas on you can expect many franchise offices to rebrand (and no I’m not talking about my office) simply because we are seeing fewer and fewer properties on the market. Change is inevitable although it takes a long, long time to see tax changes from elected governments. Ping: The Henry Tax Review and NSW stamp duty to name just two examples.

In the meantime, businesses will re-calibrate and make the economic decisions required to stay afloat and progress down that path of longevity. I predict major changes to the Australian real estate franchise landscape from 2017.

MOSMAN – 2088

Number of houses on the market this time last year – 49
Number of houses on the market last week – 32
Number of houses on the market this week – 34
Number of apartments on the market this time last year – 60
Number of apartments on the market last week – 32
Number of apartments on the market this week – 34

CREMORNE – 2090

Number of houses on the market this time last year – 13
Number of houses on the market last week – 15
Number of houses on the market this week – 13
Number of apartments on the market this time last year – 23
Number of apartments on the market last week – 15
Number of apartments on the market this week – 13

NEUTRAL BAY – 2089

Number of houses on the market this time last year – 9
Number of houses on the market last week – 5
Number of houses on the market this week – 7
Number of apartments on the market this time last year – 23
Number of apartments on the market last week – 22
Number of apartments on the market this week – 22

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.