Australia off-the-plan Market Forecast 2016

In 2015 the Australian Prudential Regulation Authority (APRA) announced that the big banks must hold more capital against their gargantuan mortgage books to provide a buffer against defaults.

http://uchkconsulting.com/australia-overseas-real-estate-purchaser-risk-assessment.php

Australian banks are now progressively reducing their loan-to-value ratios (LVRs) on investor loans from 95% down to 80%.  Overseas investors the hardest hit, slashed from 80% down to 70%, in most cases.

Mortgage rates are not likely to rise as a consequence of the more stringent capital requirements however, many economists anticipate weaker off-the-plan sales into 2016. A weaker off-the-plan market translates to valuers down valuing purchase prices in certain precincts with a high level of apartment supplies and risk.

The Australian Prudential Regulation Authority (APRA) is the Government agency that oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance and was established on 1 July 1998.  http://www.apra.gov.au

A majority of overseas investors that purchased off-the-plan in the past 12-24 months have made their financial decision to purchase based on obtaining an 80% loan. For the many uninformed overseas purchasers, the month prior to settlement delivers a shock that their Australian real estate investment is hungry for another 10% in equity from their savings.

The potential settlement risk for property developers will be overseas purchasers caught by surprise, whom cannot afford an additional 10% to cover the 70% LVR.  In other words, a typical Melbourne investment of $500,000 will require a minimal of $150,000 in equity directly from the purchasers own savings.  (10% deposit + 20% Equity a whopping 30%) 

Pair the ‘APRA financing conundrum’ with the a ‘weaker off-the-plan market’ there is a high possibility that the banks valuer will provide a valuation for less than the original purchase price.  

The market fear is that the valuers assessment at settlement could reduce values 5%-12% lower than the contract price, the 70% loan approval could see the purchaser having to handover savings to cover the further valuation shortfall. 

Assuming a 5% reduction in the off-the-plan purchaser price (5% is considered a reasonable buffer on off-the-plan valuations)

10% deposit %50,000 + 

20% Equity $150,000 + 

5% Value Buffer (Min 5%) $25,000  +

35% Total equity required $175,000

There a segments and precincts within the real estate market already flagged as high risk due to the over supply of product in the pipe line or currently on the market. Potentially the 5% off-the-plan valuation buffer, could jump to over 12% in these over supplied precincts.

The ‘APRA financing conundrum’ and ‘weaker off-the-plan market’ both translate to settlement risk for property developers and a need for financial planning for overseas real estate investors.

Australia Money Laundering from China

Chinese investors flooding billions into the Australian real estate market prompt money laundering investigations

The talk around the industry and from Government sources is that a significant amount of criminal liability will fall upon real estate agents whom knowingly facilitate real estate transactions from suspicious sources.

http://www.abc.net.au/news/2015-10-12/chinese-investors-flooding-billions-into-australian-real-estate/6841816

The Australian Government welcomes foreign investment from overseas. It is the genesis to building Australia’s economy by supporting population growth and financial prosperity for all Australians.

Overseas Australia real estate investors are reminded to only purchase Australian Government approved property investments that are regulated by the Foreign Investment Review Board (FIRB). 

All UCHK real estate investment opportunities are FIRB - Foreign Investment Review Board pre-approved and available for purchase by overseas investors.

http://uchkconsulting.com/

Dodgy Agents scam alert - Australia Real Estate Agents for a day.

There has been an increasing number of ‘Agents for a day’ offering advice to Chinese clients.

“dodgy”- dishonest or unreliable."a dodgy real estate sales person” - behaving or prone to behave in an untrustworthy, deceitful, or insincere way.- intended to mislead or cheat."he promised a cash rebate and immigration"

Many agents operate ethically and professionally. However I have also seen a significant number of Dodgy Agents who give the industry a tarnished reputation that all respectable and Professional Agents have to wear.

http://uchkconsulting.com/australia-dodgy-agents-scam-alert-real-estate-agents-for-a-day.php

If you are an overseas investor you have more than likely been exposed to 100’s of agents at property exhibitions and seminars and, there is no limit to the number of Dodgy Agents found on the internet.

There is an increasing amount of complaints regarding Dodgy Agents being made at the Office of Fair Trading in each State in Australia.   From promised rebates that remain unpaid to two tier price lists wherein the overseas investor has been offered a higher price than what was available to the local market. 

Two tier pricing is a common scam by Dodgy agents to allow them to reap a higher sales fee and pocket an illegal commission. A fraudulent markup on the developer price list to unfairly reap up to a 20% fee, or higher.

I have even heard of some unfortunate overseas buyers being charged a ‘buying fee’ by a Dodgy agent.

The ‘Free Australian immigration’ scam in China is a vulgar card trick played by Dodgy agents at property exhibitions.  Verbal statements and exhibition booth signage that clearly entice clients with messages of “become an Australian Citizen” buy our special property that will grant you a permanent resident status or citizenship.  This is certainly not the case, Australia real estate investment does not entitle any overseas investor to PR status and certainly not citizenship.

Rebates are another common scam with the sales representative offering potential clients cash incentives to secure the sale. There is nothing wrong with being offered a rebate however, they are very rarely paid by the Dodgy Agent whom disappears or does not answer the distressed clients call after settlement.

The Australian Government is also hunting down Dodgy Agents and the purchasers of Australian real estate with tough new foreign investment rules.  There are hundreds of overseas investors that have been convinced to illegally purchase ‘not approved’ Foreign Investment Review Board (FIRB) real estate. Persuaded by Dodgy Agents that their illegal FIRB purchase can be hidden from the Australian Government via everything from distant PR relatives, company structures and false identities.  In many cases, the new FIRB rulings are not communicated to the overseas clients.

“Overseas real estate investors have to navigate the complex procedure of buying or selling a property and unfortunately Dodgy Agents take advantage of the fact that the Chinese are not knowledgeable of the system or their rights”

Only recently, I learnt of an agent that had Zero industry, skills or knowledge and did not assist their client at the settlement stage.   Whilst buying an apartment is the easiest step for overseas investors, having a Professional Agent at the settlement stage can make the difference between ‘Pure Hell’ and a perfect investment.  

At settlement many overseas purchasers do not realise that in the back ground an number of critical services come together.  Starting with at least 3 months notification that the off-the-plan purchase is nearing completion and that obtaining finance approval is essential.  More often than not, the Dodgy Agents do offer any form of assistance or direction on who or where to approach the critical finance.  

Another trend by Dodgy Agents is not attending the final inspection with the developer to identify any building defects and take photos of the new investment property on behalf of the client.  A Professional Agent always provides the property valuer a detailed information pack about the project and comparable sales to ensure that the valuation to be provided matches the purchase price. A week prior to settlement the Professional Agent will book a final inspection with the property developer to represent his or her client.  A critical step is the Professional Agent is the eyes and ears of the overseas investor to ensure that the purchase (off-the-plan) has been delivered in accordance with the Contract of Sale such as; size sqm, appliances, fittings and finishes and, the overall quality.  Taking photos so that the new investment can be visually communicated to the overseas client is not only a courtesy but, a record for the client.

I personally was informed of a Dodgy Agents antics and stepped in to assist some distressed clients.  At a prestigious project in Richmond Victoria three clients were beside themselves at settlement as the Dodgy Agent had omitted to include the ‘Developer Incentives’ into the Contract of Sale over two years ago, these included: 

• Rental Guarantee for 18 months at 5%
• Property management for first 12 months
• $1000 towards legal fees
• Depreciation schedule
• Storage cage
• Blinds

Whilst the developer had no contractual obligation to provide these incentives to the three clients as the Dodgy Agent had forgotten to write them in the contract, after phone calls, many emails and a luncheon, the developer kindly offered to re-instate the incentives at no cost.

Things to identify a Dodgy Agent:

• Has never been to Australia
• Cannot speak english fluently
• Is pushy to make a sale
• Offers non developer incentives
• Offers secret cash rebates from his or her pocket
• Offers guaranteed immigration
• Does not explain the rules of the Foreign Investment Review Board (FIRB)
• Offers you a none FIRB approved property
• Does not have an Australian office or representative
• Has less than 5 years experience in selling Australian real estate