Sydney and Melbourne property prices are racing ahead after a strong start to the year. Auction clearance rates are very high, suggesting demand for property remains buoyant, and these markets are expected to keep posting strong capital gains given very low interest rates and robust population growth. So developers are building many new units to meet this demand.
However, some non-resident buyers are having problems accessing funding to buy into new developments. In a rush of worry about offshore buying, local banks have been clamping down on how much they are lending to overseas investors, who are potentially missing out on good investment opportunities.
The funding block – and solution
Many buyers are no longer able to secure finance for home purchases, or get the funds they need, with some lenders requiring overseas buyers to come up with deposits of 60% or more, only advancing 40% or less of a property’s value through a home loan. So loan-to-value (LVR) ratios for overseas buyers are dropping, leaving many buyers stranded.
This is where Acuity Funding can help. Acuity is prepared to step in and fund overseas investors considering the purchase of a new property from a developer, but who can’t get the LVR they need from a bank. Acuity can make up the difference to fund 100% of the property’s cost.
The client does not need to pay for loan mortgage insurance, which represents a big saving of approximately $15,000 to $18,000 on a mortgage. All the buyer needs to pay is a one-off risk fee of $10,000 plus GST. Of this fee, the client need only fund $3,000 plus GST and the remaining $7,000 plus GST will be capitalised into the loan.
So, Acuity’s funding tool will allow participating developers to settle on sales of new apartments to non-residents too as they can use this tool to bridge the gap between the old bank lending ratio and the new reduced lending ratio.
So, if you do have offshore buyers, call Acuity as we can help them get into the Australian property market. Or if you do business with developers who wish to continue selling to the large non-resident buyer market, then call Acuity Funding to learn how this can be achieved.
The lure of Australian property
The fact is that non-resident buyers have been lured to Australia by the prospect of strong capital gains and they will continue to invest here.
The recently released CoreLogic’s Home Value Index shows dwelling prices in Sydney were up 18.4% as at February 28, 2017, from a year earlier. This is the highest annual growth rate in 14 years — since the 12 months ending December 2002 when the housing boom of the early 2000s started to slow.
Since the beginning of 2009, Sydney dwelling values have more than doubled, rising by 104.5% while Melbourne values are 87.7% higher, far ahead of the next best performing capital city, Canberra, where dwelling prices have risen by a comparatively modest 37.4%, according to CoreLogic.
Elsewhere around the nation, the Hobart market remains strong due to a shortage of property being listed for sale. Property prices are rising steadily in Canberra, while Brisbane price gains have cooled a little. Adelaide prices are up modestly. But in Perth and Darwin, house and unit prices are still falling as the mining downturns continues to suppress demand for property.
For the last weekend in February, auctions cleared in Sydney jumped to 81.5% and to 80.1% in Melbourne, according to CoreLogic figures. Nationally, the average clearance rate rose to 78.6%. In Canberra, the clearance rate was 77%, 63.6% in Brisbane and 76.3% in Adelaide. Those are very good numbers.
Sydney and Melbourne to dominate gains
But overall, Sydney has been the nation’s stand-out performer followed by Melbourne.
Strong population growth will likely keep capital gains going in those two cities. According to the Australian Bureau of Statistics (ABS), Australia’s estimated resident population is projected to increase to between 36.8 and 48.3 million people by 2061 from its current level of just over 24 million. Much of that growth will be concentrated in Sydney and Melbourne, which are already recording higher population growth rates than other Australian capital cities.
While Australia’s population grew by 1.4% to reach 24.1 million by the end of June 2016, Victoria’s population grew by 2.1% while in NSW it grew by 1.4%, outstripping all other states and territories.
So that is a lot of extra homes which need to be built, especially in those two states, but also in other capital cities. That is adding to demand for property, along with its strong appeal as a relatively safe investment class versus equities.
This is pushing up demand for home loans. Over the month of December, 2016, the value of new home loans taken by property investors rose 1.7% to $13.2 billion (in trend terms), according to the ABS. Loans to owner-occupiers rose 0.2%. So while some banks have clamped down on lending to investors through higher interest rates, demand for property is strong.
About Acuity Funding
Acuity Funding provides real funding solutions in a challenging and changing market to residential and commercial borrowers. Commercial lending requires specialised skills. Acuity applies its expertise in analysis to examine commercial proposals and source appropriate finance. We help our clients by putting together a finance submission that is a realistic and attractive proposal to lending institutions. Our prudent approach ensures that projects get off the ground by working hard to ensure that the borrower and the lender work to a common goal. More information: www.acuityfunding.com