We are currently seeing a big surge in Asian investment in new apartment developments, which will lock in apartment building rates for the next 18 months.
But in less than two weeks, the new development rate will come to a sudden halt, so that by around the end of 2016, or election time, we are going to see a big fall in apartment development coincide with the cessation of motor making in Australia. Almost certainly this will result in a significant rise in unemployment.
Given that the Coalition has no idea of the fuses they have lit, if Bill Shorten is able to hang onto the opposition leadership, he can still be PM.
And the final Coalition fuse is that they have established the stage for the next chapter of the housing boom.
These are remarkable scenarios that have completely escaped the radar of most economic and political think tanks. But once you understand what is really happening, the high-risk government strategies are there for all to see.
At the moment we have an unprecedented apartment construction boom in Melbourne and Sydney. That boom is being driven by direct individual Asian buyers and by major fund pools funded by those seeking Australian visas.
The reason unemployment has fallen in Australia, to the surprise of so many economists, is that they underestimate the power of this Asian-funded building boom. Take it away and you will have a very different economy where unemployment is much higher.
Not understanding this, the government has responded to domestic political pressure and decided to slash the boom so that it takes effect from around the final quarter of calendar 2016 -- election time. It’s also possible the impact may be delayed to early 2017. The timing will play a big role in deciding the next government.
Currently the Significant Investor Visa program allows well over half the $5 million required to obtain a visa to be invested in residential real estate funds. We do not know the size of these funds but my real estate friends tell me they are massive with billions on the table. Those funds have already underwritten big slabs of the apartment boom in Melbourne and Sydney (Asian investors are transforming Melbourne’s CBD, March 16).
On July 1 -- 12 days away -- the amount invested in these funds that can be counted towards an individual’s visa application is to be reduced to 10 per cent of around $3m, or about $300,000. In other words, a purely token amount.
As you can imagine, there is now a scramble to set up fund investments before July 2015 and those apartment projects that have permission to be developed are working feverishly to have the money in place to get started and beat the deadline. Melbourne is the major beneficiary because in the CBD more than 20,000 apartments have been approved and less than half have started construction.
It is likely that this avalanche of apartment construction will cause a short-term surplus. But if infrastructure Australia is right, then the population surges coming to Sydney and Melbourne will quickly mop up the oversupply and shortages will resume. And, when that happens, with other policy adjustments, a new round of price rises will take place -- that is we inflate the ‘bubble’ once again by creating shortages (The conspiracy to boost house prices, June 10) and (Australians will be squeezed by the housing supply shortage, May 25).
The Government is pushing more Asian and other visa application investment into private equity funds providing start-up activities. This is a desirable objective, albeit a very high-risk one. The problem is that we have huge capital requirements to fund the envisaged population increases. It has to come from overseas.