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Foreign property buyer demand falls prompting warning from Harry Triguboff

Government taxes and credit restrictions have started to hit foreign buyer demand for residential property so hard in Australia that major developers are either pulling out of the apartment market altogether or, like Meriton's Harry Triguboff, are left grappling with Chinese investors who can't settle on pre-sold apartments.

The sharp drop in foreign buyers, detailed in the latest ANZ/Property Council of Australia survey of more than 1700 property professionals from across the whole industry, is expected to further push down prices, which have already fallen in Sydney during the December quarter by 2.1 per cent.

"It's not bad, it's very bad," Mr Triguboff told The Australian Financial Review on Wednesday.

"When we start saying that stamp duty for foreign buyers should be 12 per cent instead of 4 per cent, that is called stupid."

Mr Triguboff said foreign buyer demand started to soften more than a year ago, but now the presales prices were getting "lower and lower".

"Many of the Chinese can't settle. So now we have to resell them – there is another problem.

"And everyone thought that the Australian buyer would come in when the prices started coming down – they haven't – I knew they wouldn't – it wouldn't make any sense if they did."

The ANZ/PCA survey reveals that over the last three months, total residential property sales to foreigners have dropped in every state except South Australia.

In Melbourne, Jonathan Hallinan, founder of BPM and a Financial Review Rich Lister, said the show was over.

"I am pulling out of the residential space," Mr Hallinan said. "Since the [stamp duty] changes have been implemented, foreign sales have been almost non-existent."

He predicted supply of new apartments would "fall off a cliff" as more developers followed suit.

Figures compiled by realestate.com.au support the ANZ/PCA findings, showing that searches for Australian property by Chinese-based seekers fell 15 per cent nationally last year, with Sydney searches down more than 30 per cent and Melbourne down over 10 per cent.

"The biggest drops were in the last quarter of 2017," said REA Group chief economist Nerida Conisbee.

"I think a lot has to do with taxes introduced last year, sentiment towards Australian property in general and perhaps a slowdown in the construction cycle meaning less to buy.

"Chinese capital controls are perhaps also making an impact – fewer Chinese developers may be impacting buyers." 

Major developers say they warned governments about the effect of such a tax grab and how this would dampen demand from an important market segment – foreigners can only buy new homes under Australian law.

PCA chief executive Ken Morrison said he warned governments about overreaching and "killing the goose that lays the golden egg".

"If we continue to see government put up taxes on foreign purchasers then this trend will continue, and that's a danger because foreign buyers have formed an important role to encourage housing construction activity in Australia."

Crown Group chief executive Iwan Sunito, who oversees a pipeline of $5 billion in residential development, said there was "no doubt that [the tax] has some impact".

"I don't know what percentage [decrease in foreign demand] it would be but when you compound the tax with the current lending restrictions it doesn't help."

"We should be rolling out the red carpet for foreign buyers, not the red tape!"

Across the states there are varying taxes for foreigners, many of which have been increased in the last 18 months.

Victoria's Labor government introduced a vacant residential land tax on January 1 – it is the only state to introduce such a tax – while the federal government introduced its own vacancy tax, which is limited to foreign buyers of new residential premises and is based on the amount they paid in their FIRB application.

The taxes are intended to induce owners of vacant residential premises to put them onto the rental market, thereby increasing rental stock and improving affordability.

Mr Sunito said that with foreign buyers pulling back it would only lead to "developers pulling back, and that's not good for supply."

Financial Review Rich Lister Tim Gurner also weighed in to the issue.

"There is no question the banks and government are pushing away foreign investors, which in turn will have a huge effect on Australian housing affordability as supply dries up significantly and demand continues to rise," he said.

"Its the perfect recipe for another big run on house prices."

He added that of the very small proportion of his buyers who defaulted on their settlements last year, the majority were super funds or FIRB-approved buyers "as these are the two categories most effected by the funding changes".

UBS global head of real estate equities research Kim Wright said this week at a conference in China that Chinese buyers were retreating from Sydney and into places like Bangkok, saying the move was similar to a loss of interest in London property in late 2015 when buyers felt the market had peaked, with tax changes and tighter capital controls further putting them off.

While the taxes are a serious discouragement, credit restrictions have also played a massive role in the ability for foreign buyers to proceed with purchases.

Investor borrowing in Australia fell at its fastest pace in two years, falling 6.2 per cent to $11.8 billion in the last ABS figures, which covered the month of September.

Early signs of the latest retreat in foreign buyers were mentioned by one Australia's largest residential developers, Lendlease chief executive Steve McCann, in November.

"A very large percentage of foreign buyers who were anticipating borrowing from local major banks have not been taking out mortgages. They've accessed funding from elsewhere – either cash or they might be borrowing against other assets, but they're not taking a mortgage on our property. That's quite a significant shift in reaction to the lower availability of debt."