Developers bank on improving Aussie property market

Singapore

SINGAPORE developers are looking to a turnaround in the Australian property market, with an easing of credit controls and lower interest rates.

Tighter credit conditions and stamp duties contributed to a slower property market Down Under in recent years, making it challenging for residential developers to sell their projects there.

Developer Chip Eng Seng's Australian subsidiary released 222 units for sale from its freehold 704-unit project Fifteen85 in South Melbourne in June last year. According to Chip Eng Seng's FY2018 annual report, only six per cent of the units - or about 13 apartments - were sold.

Sales have been slow owing to the weak property market, a spokesman for Chip Eng Seng told The Business Times. However, the developer believes that sales will pick up as the weaker Australian dollar and decline in residential prices could attract foreign buyers.

At the same time, mainland Chinese buyers could increasingly turn to Australia as a destination for education and tourism amid escalating US-China tensions, he highlighted. "The recent election, with proposed assistance to first home buyers and ...(the) announcement of the interest rate drop by the Reserve Bank of Australia to a record low would also stimulate local sales," the spokesman added:

Following the re-election of Scott Morrison as Australian Prime Minister in May, his coalition government announced a new first home loan deposit scheme that will enable eligible buyers to apply for a loan with a down payment of 5 per cent, instead of the 20 per cent required.

Roxy Pacific - which launched West End Residences in Sydney in April 2017 - reportedly sold 70 per cent of the apartments in four hours then. According to its latest annual report, the project is 88 per cent sold.

Meanwhile, Aspial Corp had some buyers who were unable to complete their purchases for its two residential developments in Melbourne - Avant and Australia 108 - as a result of dificulties such as inability to obtain loans and lower loan quantums. It is unclear how many units were returned.

Aspial has sold 99 per cent of its 456-unit Avant, and 88 per cent of the 1,103-unit, freehold Australia 108 which was launched for sale in Q4 2014.

Observers are hopeful the market will improve now that Australia's general election is over, citing relaxation of credit controls, lower interest rates and a slowdown in declining home prices.

Justin Brown, chairman (residential projects) for CBRE Sydney, highlighted that buyer interest in Australian residential properties - especially those for investment - has been softening since 2017, owing to factors such as price growth for nearly a decade, government entry taxes and a tightening of credit, which is now just starting to ease.

Offshore investment in new apartments in Sydney now accounts for 3-4 per cent of CBRE's sales, versus 17 per cent at the market peak in 2017. Over the past one year, some offshore buyers have also been shifting their focus to the United Kingdom and the United States or lower-entry Australian cities and states such as Canberra, South Australia and South East Queensland.

Mr Brown added: "However, we are still witnessing buyer interest in trophy properties - that is, apartments worth over A$3 million and house prices over A$10 million - and/or buyers purchasing for family-related reasons, such as relocating here due to children's education."

Aspial for instance, is banking on improving sentiment and its unique skyscraper project to sell the remaining residential units of its Australia 108 project. The 101-storey development is Melbourne's tallest tower, and features a club on levels 70-71 with unblocked views of the Melbourne CBD, the bay, and surrounding parks and gardens.

Following the decline of home prices in Sydney and Melbourne, CBRE is also seeing renewed interest in these markets from foreigners. On the domestic front, demand is picking up from local buyers thanks to credit easing after the Federal election, Mr Brown added, pointing out that even at the market peak, only 17 per cent of sales were from foreign buyers.

The fall in home prices is also starting to slow.

All this comes as the Australian Prudential Regulation Authority (APRA) has moved to loosen policy which limited access to credit as it required banks to stress test prospective borrowers against a 7 per cent interest rate. Home buyers will now be able to borrow more from banks.

In January, Australia's banking regulator also lifted a 30 per cent cap on the proportion of new interest-only home loans that banks can issue.

Meanwhile, the Reserve Bank of Australia on Tuesday cut interest rates from 1.5 per cent to a record low of 1.25 per cent in a bid to boost the economy, with market watchers expecting another cut later in the year.

Reapfield Property Consultants has seen a 20 per cent drop in enquiries this year from Singapore buyers looking to purchase in Australia, with its executive director Peter Thng pointing to tightening of credit from Australian banks previously.

However, Singaporean buyers are also looking to cities such as Perth, which is 20-30 per cent cheaper than Melbourne and is closer to Singapore, he added. Mr Thng said: "We have just started promoting Perth properties last year and response has been increasing in recent months. Brisbane and Gold Coast have also drawn interest, although the numbers are not large."