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Australian realtor McGrath warns on profit as new rules douse Chinese interest

[SYDNEY] Australia's only listed realtor, McGrath Ltd, issued a profit warning on Monday that sent its shares plunging, as higher taxes and other restrictions resulted in a sharp pullback in Chinese buying interest for new apartments.

The warning, McGrath's second since January, is the clearest indication yet of impending pain for developers, who have been building tens of thousands of new units to cater to foreign buyers and also underscores central bank fears of an apartment glut.

In response to an outcry over local home buyers being priced out of the market, several Australian states have since 2016 imposed new duties on foreign purchases of residential property while the country's biggest banks have, of their own accord, stopped lending to overseas buyers.

The federal government has also introduced punitive measures for foreigners who leave properties vacant, while at the same time China has sought to curb capital outflows.

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McGrath said the slowdown had already hurt earnings in the first four months of the financial year and its full-year pre-tax earnings could come in as much as 25 per cent below a forecast of A$16.6 million(S$17.34 million) from stockbroker Bell Potter.

"The board believes it prudent to assume continued subdued market conditions," the company said in a statement that also outlined a cost-cutting plan.

Shares in McGrath plunged as much as 26 per cent to A$0.45 in early trade before paring losses to hit A$0.52. The stock has never traded above its boom-time listing price of A$2.10 in 2015.

The pullback in Chinese interest is being felt particularly hard in Sydney after the state of New South Wales doubled the tax on international property transactions to 8 per cent, bringing taxes owed on such deals to 13 per cent.

"It's just squeezed out the foreign's made Australia less attractive," said Ted He, managing director at CLG Corporate, a firm that advises Chinese property investors.

He added that deal numbers for his firm had dropped from as many as 40 per month to about four.

Latest housing figures show prices in Sydney are falling, after soaring 74 per cent since 2012. Auction clearance rates for the city touched their lowest in nearly two years at the end of October, according to data from CoreLogic.

A similar tale is also being seen in New Zealand where ever-rising home prices have pushed property ownership beyond the reach of many voters, prompting the newly elected Labour Party to promise a ban on foreign buyers and the central bank to crack down on lending to investors.