Fitch Ratings warns of ‘hidden’ offshore property buyer risk
The Australian May 18, 2016 12:00am
Andrew White, Samantha Hutchinson
Sales of new residential properties to offshore buyers could be much higher than local banks -estimate, with about one in four developments bought by foreigners, ¬raising risks for banks and the economy, warns ratings agency Fitch Ratings.
The new data comes amid evidence turnover on the national property market is slowing faster than usual in the lead up to winter, despite the Reserve Bank’s surprise decision to cut interest rates.
Andrea Jaehne, a director of Fitch’s financial institutions group, said she was shocked by the increase in foreign buyers since 2010, with the Foreign ¬Investment Review Board overseeing an eightfold increase in ¬approvals up to 2015. She said it was difficult to know the true number of properties being sold offshore because foreign investment rules did not require an ¬approval for foreigners buying apartments off the plan.
“The condition is they have to market the property in to the local market, but often you find them selling it off in Hong Kong, Singapore and Shanghai,’’ she told a conference in Sydney yesterday. “We don’t have a full picture of who is buying this property.’’
Fitch said its 25 per cent estimate might be understating the extent of foreign buying. Foreign buying in some pockets of Sydney and Melbourne is estimated to be much higher, with up to 80 per cent of some apartment developments sold directly to offshore buyers, according to sources.
Fitch’s figure is more than double that provided by National Australia Bank, which said last month that demand from foreign buyers fell 4 per cent in March to 11.8 per cent, a 2½-year low.
Regulators and banks have res¬ponded to concerns about foreign buyers pushing up property prices by restricting lending for investment properties.
The restrictions have led to dwindling demand from Chinese investors and sparked fears amid developers that apartments sold off the plan to offshore investors will not settle, leading to forced sales and lower prices.
About 250,000 new apartments are due to hit the market in the next two years.
“Vendors aren’t as confident as they were 12 months ago,” Core Logic RP Data analyst Cameron Kusher told The Australian. “The rate of price growth is slowing ... and people are holding out until the election is done, and then after that they’ll hold out until spring.”
The number of homes going to auction fell 20 per cent last weekend, at the end of three consecutive weeks of falling clearance rates, and growing evidence that offshore buyers are in retreat.
Ms Jaehne said that the property boom posed risks for the major banks and the economy, ¬including a fall in house prices, lower housing affordability, rising household leverage and settlement risk.
Fitch this week issued a rare downgrade of five residential mortgage-backed bonds.