Australia Cracks Down On Foreign Real Estate Buyers As "Ghost Towers" Increasingly Outrage Locals

As we"ve discussed frequently over the past several years, home prices in some of Australia"s largest markets have gone completely vertical since 2013 as wealthy Chinese buyers have increasingly sought safe havens outside of the mainland to launder invest their cash.  Per the chart below, home prices in Melbourne have more than tripled since 2002 and Sydney is almost as bad.

Not surprisingly, the bubbly home prices have angered locals, not only because they"ve been priced out of the market by foreign buyers, but more so because those foreign buyers scoop up prime real estate and then proceed to let it sit vacant.  The problem is so pervasive that these luxury towers, with apartments approaching $1 million, have been dubbed "ghost towers" by locals.  Per Bloomberg:

These "ghost towers," as the high-end residential property with three-bedroom apartments costing almost $1 million have been dubbed, are popular with Chinese investors who mostly live abroad. Their darkened blocks loom as sparsely occupied symbols of a property market where even solidly middle class households have increasingly found themselves priced out.

Now, policy makers are seizing on public resentment and hitting foreign buyers with more taxes. New South Wales has doubled its surcharge when foreigners purchase residential property, and Western Australia has added a new tax as well. More controversially, both the conservative federal government and the left-leaning one in Victoria state that includes Melbourne this year imposed additional taxes on properties deemed to be empty for six months or more.

More than 60 percent of Sydney residents blame foreign investment for the rising prices, according to a survey by University of Sydney academic Dallas Rogers. The idea of taking prime real estate out of the housing supply and leaving it vacant has become a focus of anger as homelessness has risen and hundreds of people have been camping in the rough out outside places like the Reserve Bank of Australia.

“It’s just absurd," said Tony Keenan, chief executive officer of affordability advocacy group Launch Housing, referring to the fact that Australia’s long period of uninterrupted growth should have ensured homes for everyone instead of "record levels of homeless and massive construction with empty properties at the end."

An analysis of Australian census data by the City Futures Research Centre found more than one in 10 homes unoccupied on the night of the count last year, with empty properties having risen 19 percent in Melbourne and 15 percent in Sydney since the last census five years previously.

Foreigners, mainly from China, purchased 25 percent and 16 percent of the new housing supply in New South Wales and Victoria, respectively, in the year through September 2016, according to a Credit Suisse Group AG examination of state tax receipts.

But, much like Vancouver where city officials slapped foreign nationals with a 15% transfer tax on home purchases last summer, the city of Melbourne has decided to fight back by imposing its own taxes to curb what increasingly looks like one of the world"s largest housing bubbles.

Melbourne’s tax of 1 percent of an empty home’s value takes effect in January, adding to a nationwide tax imposed in May that starts at A$5,500 ($4,400) and scales sharply upward for properties worth more than A$1 million.

Figuring out if a home is vacant is a vexing subject for public officials. Those in Victoria have said they plan to ask owners to self-declare, and also intend to monitor electricity and water usage to find cheaters. The Australian Taxation Office suggests the government investigate tips from informants. Other potential sources could include postal data or tax returns, said Catherine Cashmore, president of land tax reform group Prosper.

But real estate professionals say it’s easy enough to hire someone to come in and turn on switches and taps, making a place appear lived-in. Agents say many properties are only temporarily empty, waiting for children to attend university or a family to able to move in. They also raise questions of fairness.

Of course, not everyone is happy with the new taxes, including Monika Tu who has undoubtedly made a fortune helping rich Chinese buyers launder money through the Australian real estate market.

“What next?" said Monika Tu, the Sydney-based director of Black Diamondz, which specializes in high end property sales to mainly Chinese buyers. "Shall we tax people who buy new shoes and don’t wear them?’’

Sorry, Monika...you can always move to Seattle...we hear they"re still very receptive to helping launder Chinese cash...

Australia's Dystopian Future: A Nation Of High-Rise Renters

Authored by James Fernyhough via TheNewDaily.com,

Young Australians are increasingly likely to live most of their lives in high-density rented accommodation – and that’s not necessarily such a bad thing.

That was one of the more controversial findings of a major study into the housing market released in recent days.

The Committee for Economic Development of Australia (CEDA) concluded that capital city home ownership would continue to be unaffordable for at least the next four decades.

It was grim news for many young Australians, particularly those who have bought into the Aussie dream of owning their own house and backyard in a spacious suburb.

But the study argued that a lower level of home ownership, and/or a greater level of high-density living, need not be a bad thing.

In fact, examples from overseas – and even some in Australia – suggest it could be a positive. But this would require a massive shift in policy and, more importantly, attitude.

What clearly emerged from the report is that there is no one culprit behind the property price explosion; rather, the picture is of a tangled mess of convergent causes, most of which will not go away.

CEDA blamed all the usual suspects, including foreign investment, negative gearing, capital gains tax rules, interest rates, increasing urban population, limited land supply, restrictive planning rules, and the tendency of stamp duty to discourage retirees from downsizing.

Professor Rodney Maddock, CEDA’s research and policy committee chairman, said the research showed that “barring any major economic jolts, demand pressures are likely to continue over the next 40 years and supply constraints will continue”.

In other words, if you’re holding out for the “bubble” to burst before you make your move, you may be waiting a long time.

Many of the partial solutions were equally as predictable: replace stamp duty with a land tax; raise capital gains tax on investment properties; loosen planning restrictions; and improve infrastructure to more remote suburbs.

While all of these would help the situation, none would comprehensively reverse the astonishing increase in property prices over recent decades.

The result of all this is that more and more people will be forced to rent – which, indeed, has already been happening.

In 1982, the report showed, just over 40 per cent of 25- to 34-year-olds were renters. Now it’s closer to 65 per cent. The proportion of renters has increased in every age group over that time period, excluding the over-65s.

Predicting this trend will continue, CEDA recommended improving tenancy laws to “provide adequate protection and certainty to long-term renters”.

It pointed to countries such as Germany, the Netherlands and Sweden, where “long-term contracts exist within the private rental market, and termination is only possible in limited circumstances”.

The case of Germany is an interesting one. Only ­52 per cent of Germans own their own home, compared with 67 per cent of Australians. Given Germany is a developed country with a high standard of living, this shows home ownership is not a prerequisite for wellbeing.

At the end of the report, CEDA presents a utopian, and occasionally dystopian, vision of high-density living. It takes the example of an existing high-density development in Sydney’s northern beaches, called ‘The Village’.

A particularly irksome passage talks about a “hierarchy of spaces to create an intuitive sense of public and private space, without excluding non-residents from the residential parts of the site”.

While this vision may be off-putting, the fact is this sort of development is the most logical answer to the problems raised by the report. It makes economical and sustainable use of space, and in so doing solves many of the problems we are currently facing.

However, embracing such an ‘un-Australian’ style of accommodation would clearly require a fundamental shift in attitude.

But if we don’t make this shift, many younger Australians may find their quality of life greatly diminished, as more and more of their pay goes towards servicing massive mortgages, paying inflated rents, and simply getting to and from work.