According to the QBE Housing Outlook report released today, the surge in foreign investment will be significantly constrained in the next three years.
“Slowing price growth and low residential yields will encourage investment elsewhere [and] banks have tightened lending policy toward overseas buyers, such as not accepting foreign income in serviceability assessments, and reducing loan–to–value ratios depending on residency status,” the report said.
The study also pointed to the state surcharges that have been imposed in New South Wales, Victoria and Queensland on stamp duty of 3 per cent, 4 per cent and 7 per cent respectively to foreign purchasers as major deterrents.
On top of this, foreign residential owners must pay a 0.75 per cent land tax surcharge in NSW, while in Victoria the absentee owner land tax is set to rise to 1.5 per cent from 0.5 per cent.
These are likely to quell the increase in foreign investment that has occurred over the last five years, growing tenfold from $6.09 billion in 2009-10 to $60.75 billion last year.
The introduction of these measures comes at the same time that tighter capital controls are being implemented in China, a central source of foreign investment in the Australian property market, limiting capital outflow.
According to QBE, some dwellings are will be harder hit than others.
“The headwinds for foreign investors are expected to have the greatest impact on the new dwelling market, particularly the apartment sector, where substantial pre–sales are required for a project to obtain development finance for construction. For those that have already purchased off–the–plan, it will become more difficult for foreign investors to settle, particularly if a lower loan–to–value ratio and potential lower valuation requires a significantly higher equity contribution by the purchaser.”
Fewer settlements could in turn place greater downward pressure on apartment prices, if they are placed back on the market at lower prices, the report warned.