Do your eyes glass over a little when property market commentators begin to discuss foreign investors?
I have to admit, mine do to. When I think of foreign investors, I think of cashed-up business executives flitting in from Asia to snap up expensive penthouses in Sydney in Melbourne.
That’s clearly not the property market I operate it, so why do I need to worry about what they’re up to?
Apparently, they’re getting a little more active than I was aware of – and they’re not just targeting the high end developments.
While they generally defer to brand new, off-the-plan developments, many foreign investors are now buying up in bulk, often purchasing up to five properties at a time.
This could put quite a significant amount of pressure on surrounding property prices, particularly when demand from local buyers isn’t exactly waning…
Here’s what Douglass Driscoll from real estate agency Starr Partners had to tell Property Observer about foreign property buyers and other trends impacting Sydney’s property market:
In 2014, Sydney’s property market was white hot but the rate of growth was unsustainable.
While the volume of sales last year were impressive, more than half of the transactions made were by investors rather than owner-occupiers and this has started to create a bottleneck in the market. The good news however, is that the market is starting to relax.
With the economy strong, consumer sentiment holding and the Australian dollar balancing against the greenback, I think the 2015 market will go from white hot to red hot and be slightly less frantic for buyers.
Here are my top five trends for Sydney’s property market in 2015:
1. INCREASED STABILITY IN PROPERTY PRICES
The Sydney property market experienced accelerated growth in the past year but this should start easing in 2015. In 2014, average growth rates swelled past 13%. If we continue along this path, I believe that
Sydney could be at risk of entering another property bubble, with prices ballooning and competition escalating.
As we enter 2015, I expect to see more stability in the market, with growth rates of between 6-8% over the year. With interest rates also likely to remain at low levels and inflation easing, home buyers can take their time in making their biggest life decision without feeling the panic to buy now.
2. INCREASED DIVERSITY IN PROPERTY PORTFOLIOS
I think more investors will be ready to spread their wings and generate wealth in 2015. While it’s common for investors to invest in only one property, we are seeing a shift in the investor mindset.
Whether it’s mum and dad investors or those planning to retire and live off their rental income, investors are becoming more open minded about how they purchase property and grow their portfolio – such as through structured SMSF investments.
More investors are also treating their investments as a business transaction. They are not looking for a property to move into down the track; they are looking for properties in high growth areas where rental vacancies are low, demand is strong, and the property type fits the demographic needs of residents in the area.
3. EMERGENCE OF A GENUINE COMMUTER BELT
Sydney is a global city but transport links between the CBD, and the eastern and western suburbs have been sub-optimal when compared to other global cities.
With a fragmented transport system, pockets of the city are closed off and this can be a huge detractor for buyers wanting to live outside inner city areas.
With new major rail links and road works underway, such as the North West Rail Link, and upgrades to the M2/M7 and M5 motorways, the divide between Sydney’s east and west is starting to close.
New railway stations in the Hills District for instance, such as Rouse Hill, Kellyville and Bella Vista, will open up these family friendly areas to dwellers who may have previously only considered living close to the CBD, where properties are typically more expensive and less spacious.
4. A ‘FREEZING OUT’ OF FIRST HOME BUYERS
A worrying trend I see in 2015 is the continued decline in the number of first home buyers entering the market. This, I believe, correlates with an increase in investors snapping up Sydney properties.
In a balanced market, around 20% of property transactions should be made by first home buyers. Instead, transactions by this group have dropped as low as seven%. First home buyers are our future generation. They are encouraged to buy property, yet their ability to enter the market and climb the property ladder is becoming increasingly difficult.
More incentives will be needed to enable first home buyers to compete against more established or cashed-up investors; otherwise they risk being left behind,” says Doug.
5. A CONTINUED INFLUX OF FOREIGN INVESTORS
The unprecedented rise in foreign investors purchasing Australian property in 2014 is set to continue.
While investment from overseas buyers may help stimulate the economy, we need to be mindful that we already have an undersupply in housing and there is no shortage in locals wanting to buy.
Many foreign investors are buying off-the-plan developments in bulk, often purchasing up to five properties at a time. Debate over the number of properties bought by this group could reach a climax in mid-2015.
Introducing boundaries, such as limiting the number of properties that an overseas investor can acquire, or requiring developers to sell a percentage of their stock to Australian residents, I believe, will help provide more opportunities for local buyers.