Actually none of these names even make it into the top ten of the 13th Annual Demographia International Housing Affordability Survey: 2017, published on 2nd August 2017. The key point to note here is that this index looks at affordability (i.e. median price relative to median income) rather than looking purely at headline price. On this basis, the only UK location to make it into the top ten (in last place) is Bournemouth and Dorset. The leaders are: Hong Kong, Sydney and Vancouver.
Regulators blow cold breath on the Sydney property market
The Australian Prudential and Regulatory Authority has given new guidance to lenders as to how they should assess affordability. Under ARPA’s supervision, the banks have reined in loans for high percentages of the property value and are undertaking more stringent checks on documentation. Furthermore, lenders have increased interest rates on interest-only mortgages, a move which is far more likely to impact investors than those buying residential property. ARPA has also set a limit of 10% on the annual growth of lending to offshore investors in addition to which some states have imposed local taxes on investment properties bought by non-residents. In New South Wales (where both Sydney and Canberra are located), this tax is a fairly hefty 8%.
The cool-down contracts the market
These curbs essentially took effect in March this year and it’s unlikely to be a coincidence that house-price growth in Sydney slowed to 2.2% in the period of May to July, almost half of the 5% seen earlier in the year. Additionally, the figures for May showed that loans for property investment purchases were down 4% as compared to January, accounting for just over a third of new mortgages. Finally, property auction clearance rates have been noticeably lower, regularly dropping below 70%, where they were over 80% prior to the restrictions being implemented. These are all indicators that the Sydney housing market is slowing to a more reasonable (and sustainable) pace.
Taxing issues still need to be addressed
It’s relatively easy to target non-domiciled investors via special taxes, for the simple reason that they are both generally straightforward to identify and unlikely to be able to vote. It’s also fairly simple to tighten up lending practices, which has the added benefit of helping to make lenders more resilient (and hence less likely to fail). There is, however, another reason why the property market in Australia is hugely attractive to investors and that is the fact that landlords can offset losses from rental properties against their overall tax bill. This tax break has become a hugely contentious political issue in Australia with older Australians seeing it as being essential to their retirement plans and younger ones seeing it as a way of prioritizing investors in front of people who want to buy a home for themselves.