Sydney apartment developers like Harry Triguboff are very concerned at what is happening in Melbourne because they fear if the Melbourne apartment market cracks, it will spill over into Sydney.
Not only is the Melbourne apartment market more brittle than Sydney’s, but the attacks on new Chinese and Asian buyers are more severe.
And remember that, as pointed out yesterday (A Chinese exodus will decimate our property market, May 5), Chinese and Asian buyers comprise some 80 per cent of the buying of CBD and inner-city apartments in both cities. If they stop buying or, worse still, start to sell, there will be a dramatic fall given their market dominance and the fact that Sydney apartment prices have started to fall.
What is happening in apartment market is many times more significant than yesterday's interest rate cut.
The stamp duty attacks in Victoria coincide with a plan by the Federal Government to prosecute what has been an unenforced law stopping overseas residents buying existing dwellings as distinct from new developments.
In Victoria the cost of new apartment developments is set to rise sharply. Melbourne has attracted more Chinese buyers of inner-city/CBD apartments than Sydney because of the attractions of the city to the Chinese and the fact that Melbourne apartments are significantly cheaper because of lower land and approval costs.
So in any market that is price driven, if you lift the price significantly, it is very dangerous.
Let’s look at how the price of a Melbourne apartment costing today -- say, $450,000 -- might rise after July 1. First there is a new Victorian stamp duty on overseas purchases, which will add $13,500, and second there is the Tony Abbott tax of $5,000 -- a total rise of $18,500 or 4.1 per cent.
But then there is a third ‘tax’ in Melbourne. High-rise apartments have always been built under building union rules but thanks to great work by former Victorian premier Napthine and the Abbott Government, union costs have been contained.
Big builders believe that the new Andrews Government, which has close links with the building unions, will not be able to control them so big builders are beginning to prepare higher tenders. Andrews might be able to control the unions but the ‘fear factor’ may add another 5 per cent to the cost of apartment towers. That’s an extra $22,500 to our $450,000 apartment taking the total cost rise to $41,000 or just over 9 per cent.
Such a sudden rise will stop many developments because it will almost certainly slash Chinese buying. If the Chinese feel unwelcome in Australia, they will look at selling, particularly as many also have highly leveraged apartments in their home cities in China. The China market is looking very brittle (Have Australia's miners made a big mistake?, May 5; Hard truths for a soft landing in China, May 5).
Like many people, I believe that is bad for our dwellings to be priced out of the range of younger people. Younger journalists are reflecting that frustration and disenfranchisement in a lot of commentaries and news items.
Both Tony Abbott and Victorian Premier Daniel Andrews have both picked up the local political winds. Unfortunately, the collapse of the mining boom and the closure of the motor industry has made the economies of our two largest cities (particularly Melbourne) dependent on Chinese apartment buyers and the associated building boom.
Attacking that market at a time of uncertainty in China is not wise. While the Sydney market is stronger than Melbourne because of the scarcity and price factors, it will suffer just as much as Melbourne if the southern capital goes into steep decline.
We have inexperienced leaders chasing popular support in both Canberra and Melbourne. It is a dangerous time.