All economic activity is fuelled (and limited) by the availability of three things: land, labour and capital. The term “demand” can be interchanged with “labour” in some instances. Without all three components, economic activity does not grow – well, not as fast as it could.
When it comes to new housing in Australia, the availability of land is largely restricted by politics and poor policy and not the actual absence of land. Hence, serviced land is what is expensive and not the actual dwelling itself. A recent housing study by the RBA shows that land costs far more where development restrictions are tightest.
Over the last ten years or so, the cost of vacant serviced suburban land has escalated by over 230%, and the price of urban redevelopment sites has increased even faster.
More new houses would be built across the country if the current jihad on detached homes was dropped; we simplified our planning schemes; stopped all the nonsense compliance and shut down troublesome state government departments. The Queensland Department of Environment and Resource Management (known in the industry as DNO or the Department of NO), for example, springs to mind. We want our bureaucracy “on tap”, not “on top”.
Such action would improve the supply of land, thereby reducing its cost and making new homes more affordable. The demand for new homes would subsequently rise.
Too simple? Well, in fact no. This is exactly what needs to happen on the supply-side of the equation. The trouble is this takes political will – and even if such will was to emerge (the sooner Queensland goes to the polls the better), it will take time to implement. And many of us just cannot continue to hang on for that long.
It is also painfully obvious that the new housing industry is being penalised by the lack of adequate finance. Whilst this situation is unlikely to improve dramatically until global funds free up – something that largely depends on a economic recovery in United States – there are certain things, on the finance or capital side, that could be done to help boost sales.
One solution would be to include overseas sales in off-the-plan, pre-construction financial prerequisites. For some reason, bankers think that the only “real” sale is a local one. But, as is blatantly obvious to local retailers these days, the internet has changed the way we buy (and sell) products and real estate is no different. An internet inquiry (with certain caveats) is as good as a walk-in these days.
The finance industry is doing their developer clients a major disservice by not treating overseas off-the-plan sales with the same weight as a local transaction.
Now, I would understand the reluctance to accept an overseas sale if they had a track record of not settling; reselling quickly or for major losses – effectively dumping the stock if their finances got a bit dicey. But all the evidence is to the contrary.
Overseas buyers, especially given current market conditions, are more likely to settle than Australians, yet the banks continue to discount any overseas buyer for pre-construction finance purposes. Nowhere does this speak more loudly than on the Gold Coast. We understand that the settlement rate is 100% for overseas buyers across the likes of The Oracle and Nirvana. Pity the same cannot be said about local sales.
Our recent study of apartment sales across the Brisbane CBD found that close to one-quarter (23%) of the off-the-plan buyers were from overseas. Overseas interest now equals sales from interstate (a 26% share of the new Brisbane CBD apartment market). Overseas buyers now make up a substantial and growing market segment. To ignore this trend is foolhardy, indeed.
It would also be great if overseas buyers were allowed permanent residency (PR) if they bought a new dwelling in Australia. Certain caveats would apply such as the cost of the dwelling (maybe over $500,000); the length of the initial PR status (suggest five years, owners can reapply in due course) and a limitation (maybe denial) to accessing our welfare system. Such as change would dramatically increase demand for new property in Australia.
Allowing overseas owners of all property, regardless if it is new or established, to resale their Australian assets overseas and not just to a local (Australian) buyer would also do wonders.
Many across the world view Australia as a safe haven, a “bolt-hold” if you will. We should be capitalising on this. Yet, when you go to an Asian property expo, watch which exhibits make the most sales, they are nearly always those that offer buyers PR (with caveats) and the right to resell anywhere. Will someone for the federal government please take note!
We need to fix the new housing industry from the ground-up (pun intended) – major changes need to be made to correct the high cost for producing serviced land. This will take political will and time. In the meantime, much more can be done to ease up capital and get more new developments off the ground.
Many of us like a fair fight, but we are growing tired of having to fight with both arms and now legs tied behind our backs.