Bracing for a price correction

On the first weekend of December, Australian developer Crown Group showcased its Mastery by Crown Group project in Singapore. It was part of a global launch that kicked off simultaneously in Sydney, Jakarta and Shanghai in mid-November; followed by Hong Kong at end-November; Singapore in early December; and Tokyo in January next year.
Upon completion, the project located in Waterloo, Sydney will have five towers with 374 luxury apartments, restaurants, cafés and shops. According to Iwan Sunito, Crown Group chairman and group CEO, foreigners generally make up 30% to 40% of the buyers of his residential projects. They include Chinese, Indonesians and Singaporeans.
Higher stamp duties
Over the past two years, the Australian state governments have raised buyer’s stamp duty and surcharges for foreign homebuyers in an effort to tame property prices, particularly in cities such as Sydney and Melbourne.
In December, Crown Group launched its latest Sydney residential project, Mastery by Crown Group (Credit: Crown Group)
Foreign homebuyers in Sydney have to pay an 8% surcharge (from 4% before), on top of a 7% buyer’s stamp duty from July this year. In Melbourne, the foreign buyer’s surcharge is 7%. Foreign homebuyers in South Australia were likewise hit with an additional stamp duty of 7% from January this year, while those in Western Australia will have to pay additional buyer’s stamp duty of 7% from January 2019.
The latest upswing in the property market has seen “extraordinary price growth” in Sydney and Melbourne, says Craig Godber, CBRE Australia head of residential research. House prices in Sydney rose 46% from 2012 to 2017. “Foreign investment in Australian residential properties peaked in 2015/16, further stoking the strong demand conditions in Sydney and Melbourne, but has fallen since,” he adds.
Higher stamp duties on foreign purchasers is just one of a range of factors that have significantly dampened foreign demand, says Leigh Warner, head of residential research at JLL Australia. Other factors include Chinese capital controls and domestic credit conditions. “With the Sydney and Melbourne housing markets being in late-cycle, more buyers are looking elsewhere at present,” he adds. “We don’t expect a further decline in foreign buyer demand because it has already fallen to quite moderate levels.”