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Foreign buyer restrictions could push prices up

Moves by governments and banks that make it more difficult for foreign investors to purchase new property could lead to higher prices, one real estate group has warned.

Andrew Schwartz, group managing director of property investment management firm Qualitas, said increasing constraints on foreign buyers could affect supply over the medium term, leading to price increases.

"It's possible that prices for new apartments will rise in the medium term due to the lack of new starts to meet demand in 2020 and beyond," he said.

"Most of the cranes in the sky right now are the result of last-cycle projects. Once they are finished, and if positive migration continues, investment in supply will be required.

"There are certainly unprecedented levels of new apartments coming into the main cities – particularly in pockets of Brisbane, Sydney and Melbourne. However, it's likely that any excess supply will be absorbed by the market over a short period of time, due to continued strong migration levels. For instance, Melbourne is recording migration of 90,000 per annum compared to 30,000 per annum in the early 1990s."

Mr Schwartz said that while many developers have been relying on foreign buyer demand to accelerate their projects, especially in the early stages of securing off-the-plan sales, this trend is set to reverse as loans become harder to secure and taxes drive up costs.

"From the Qualitas perspective, whilst we are seeing numerous finance proposals for projects which are heavily pre-committed and ready to commence, we have definitely seen a slowdown of new projects at the conceptual stage," he said.

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"Going forward, it is clear that new developments will require much greater levels of support from local buyers which, given the more limited pool, will slow down this development cycle and new supply and, in the longer term, provide a base to residential pricing."

One way to address the banks' and developers' nervousness about foreign purchasers is to amend legislation to allow larger deposits for off-the-plan sales, according to Mr Schwartz.

"Currently, legislation caps the level of deposit that can be paid for an off-the-plan development. However, providing developers with the option of substantially increasing this deposit amount could give developers and financiers more comfort around the creditworthiness of their buyers," he said.

"Ultimately developers and financiers take real credit risk on the capacity of a buyer to settle and there should be more flexibility to allow the industry to manage this risk.

"Queensland has set the way forward by legislating increased deposits of up to 20 per cent and Qualitas advocates lifting the current deposit limit above 10 per cent for foreign buyers – so long as all deposits continue to be held in trust accounts pending completion of the development."

[Related: NAB restricts lending to foreigners]

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