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A declining Market? – July 2018

New research suggests that property investors may hold onto an asset in a declining market for longer than they should out of fear of making a loss. Such a decision can be especially financially damaging for highly leveraged investors who bought at the peak of the market with the expectation that prices would keep rising.

Another view is that as long as they can hold onto the property, there will likely be another lift cycle where prices will go beyond previous highs. Australia in general and certainly the major cities have tended to swing on a 5 – 7 year cycle.

In June’s Journal of Economic Psychology, Dr Daniel Richards, lecturer of Wealth Management at RMIT University, found that investors often held on too long in a falling market due to feelings of regret. Although the research focused primarily on investors in the stock market, Dr Richards said the findings held true for property.

Independent economist, Saul Eslake, said that although some of these investors would be better off selling up and realising any gains they’ve made, many won’t do it. “Selling is one of the many strategies that they ought to be at least contemplating seriously.”

Domain figures show that most markets across Australia are either flat or declining. Sydney house prices fell 2.6 percent over the past quarter, with Brisbane falling 0.6 percent, Perth falling 2 percent and Darwin falling 7.5 per cent. Escaping the trend, Melbourne saw a rise of 0.1 percent, Adelaide and Canberra rose 0.8 percent and Hobart rose 2.7 percent, however doubts about any future strong price growth remain. CoreLogic figures also support this trend, with national dwelling values falling 0.1 percent in May – the first decline since 2012.


New Zealand Real Estate News:

The Government has already announced a watering down of its proposed ban on foreign investors buying residential and investment property. Potential changes to the Overseas Investment Act would allow overseas buyers to buy new apartments off the plan or develop new homes, but they would, at this stage, still not be able to buy existing dwellings.

Parliament’s Finance and Expenditure Select Committee recommended foreign buyers be allowed to buy into larger multi-unit housing developments, although there would still be equity restrictions on their ability to do so.

In new developments with a minimum of 20 units, overseas investors would be able to buy off the plan and retain them as an investment. However they would not be allowed to occupy them themselves and there would be restrictions on how many units in a new development could be sold to overseas buyers, likely about 60 percent.

These changes would make it easier for developers to secure development funding for new housing projects and increase their supply, as well as increasing the availability of rental housing.

This is a notable shift, as Govt’s earlier announcements of tough restrictions quickly put a number of major developments into funding crisis situations as overseas buyers deserted the market. It appears Govt now holds a clearer view of the reactions to their proposed actions.

The proposed changes will still ensure that, for the present, the market for New Zealand homes is a domestic one, not an international one. Associate Finance Minister David Parker said, “We believe that from the most expensive seaside and lakefront properties to the most affordable homes in our towns and cities, New Zealanders should not be outbid by wealthier foreign buyers.”

Interestingly, the CER relationship between NZ and Australia removes most of these blockages and restrictions, something not widely reported.

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