Collapse in foreign demand for housing sharpens property slump: UBS

The collapse in foreign demand for housing will drive prices lower and could push the RBA to slash rates, warns UBS.

Property concierge Monika Tu specialises in selling homes to Chinese buyers coming from overseas. Picture: Sam Mooy

The dramatic fall off in foreign buying of housing has been confirmed by Foreign Investment Review Board figures released last night showing offshore demand for local residential property had all but disappeared with approvals collapsing 58 per cent last year to a decade low.

UBS analysts said the drop off to $12.5 billion in 2017/18 was a negative sign for housing activity and prices, prompting them to suggest the Reserve Bank will cut rates in November.

The bank’s economists, led by George Tharenou, said that approvals had fallen to their lowest level since 2009/10, after already slumping 59 per cent to $30bn in 2016/17.

The market had gone from a “super boom” capped by a record $72bn in 2015/16 to approvals collapsing by 83 per cent over two years.

In 2017/18, NSW dropped by 33 per cent to $4bn and Victoria by 53 per cent to $5bn, with the national fall led by new housing, dipping by 62 per cent to $10bn, but established housing also slid 21 per cent to $2bn.

UBS blamed a combination of higher taxes on foreigners, tougher scrutiny on offshore applicants, loan tightening, Chinese capital controls and falling prices for the slowdown.

Real estate approvals dropped by 25 per cent to $52bn, with China off by 8 per cent to $15bn, but it was still the largest source of investment with a 30 per cent share.

Total approvals dropped 25 per cent to $52bn in 2017/18, the lowest since 2012/13, with commercial only down by 10 per cent to $40bn.

“Last year we argued a collapse in foreign investment as one of seven factors for a credit crunch,” UBS said.” This reinforces that view.”

The economists said that with an easing of policy towards foreigners not expected, the outlook for housing was still getting worse.

“We expect dwelling investment to fall sharply, with house prices to double the fall so far, and drop a record 14 per cent peak-to-trough,” they said, adding this would see a negative household wealth effect, causing consumption to moderate, GDP to ease below trend and unemployment tick up.