High-profile apartment defect cases have changed the way many NSW buyers approach purchasing, putting greater scrutiny on building quality, strata records and the parties behind a development before a contract is signed.

The industry buyers are assessing today, however, is also different from the one in which cases such as Opal Tower and Mascot Towers emerged.

NSW has introduced a series of regulatory measures aimed at strengthening oversight of apartment construction, including Building Commission NSW, the Residential Apartment Buildings Act 2020 and the Strata Building Bond and Inspections Scheme. Under the latter, developers are required to lodge a bond, with independent inspections forming part of the process for identifying defects in new strata developments.

Those changes provide another layer of protection, but they haven't removed the importance of buyer due diligence.

[smartcode_project:default project_id=5743 project_image_fid=372394]

For purchasers considering an apartment, that means looking beyond the residence itself. Building and strata history, strata reports, the track record of the builder and developer, the condition of common property and any known or planned expenditure by the owners corporation can all form part of assessing a building before purchase.

Whether the development is already complete can also materially change what can be assessed.

An off-the-plan purchaser is necessarily buying before the finished product exists. A completed apartment, by comparison, can be walked through before contracts are signed, allowing the purchaser to see the finishes, common areas and broader building as they have actually been delivered rather than relying solely on plans and renders.

It also removes exposure to some of the uncertainties that exist between an off-the-plan purchase and completion, including construction delays, cost pressures and builder insolvency during the delivery period.

[smartcode_project:default project_id=5743 project_image_fid=927]

<a href="https://www.apartments.com.au/project-marketer/equitifund-group">Projects by Equitifund</a> National Sales Director Ben Hamblett said that greater focus on tangible evidence is increasingly evident among apartment purchasers.

“The biggest shift we're seeing is buyers wanting proof, not promises,” Hamblett said.

“That's exactly why we deal in completed stock - you can inspect the building before you commit - and why we've backed every purchase with a cash bond against special levies.”

At <a href="https://www.apartments.com.au/buildings/the-lennox-parramatta-12-phillip-street-parramatta-nsw-2150">The Lennox</a> in Parramatta, that emphasis on a completed, inspectable product is already in place.

The 413-apartment, 46-level tower at 12 Phillip Street is being marketed by Projects by Equitifund, allowing prospective purchasers to inspect the residences, common areas and resident facilities before committing.

[smartcode_project:default project_id=5743 project_image_fid=375255]

The Lennox also introduces another layer to the due-diligence conversation through Strata Surety.

The vendor-funded arrangement provides purchasers with a cash-backed bond held in their own solicitor's trust account from settlement. According to Equitifund, the bond covers any special levy raised during the applicable cover period and is provided at no cost to the purchaser.

Special levies can create an unexpected cost for apartment owners where an owners corporation needs funding beyond its existing strata contributions. Under NSW strata law, a special levy requires approval by owners at a general meeting.

Equitifund Executive Chairman Greg Huxley said Strata Surety was designed to provide something more concrete than reassurance about that potential exposure.

“Buyers have every right to ask hard questions about strata risk - the industry has given them plenty of reasons to,” Huxley said.

“Our answer isn't a reassurance, it's a bond. Strata Surety puts real money behind that confidence, held by the buyer's own solicitor, not by us.”

[smartcode_project:default project_id=5743 project_image_fid=375281]

For The Lennox, its completed status also means purchasers can assess not only the apartment itself, but a building that has already been occupied and operating for several years.

Completed in 2021, the $300 million development, designed by <a href="https://www.apartments.com.au/architects/marchese-partners">Marchese Partners</a>, comprises one, two, three and four-bedroom apartments, with open-plan living areas extending to private balconies. Interiors incorporate engineered timber flooring, stone benchtops and integrated appliances, while many upper-level residences have views across the river and surrounding district.

Its established amenity can similarly be inspected in operation. Resident facilities include the Watermark precinct with a 20-metre pool, outdoor terrace, barbecue areas, gym, fitness studio and conference room, while ground-floor retail addresses the river walk and surrounding public space.

The Lennox is also home to the Southern Hemisphere's first fully robotic residential car park, which has now operated for several years. Its nine-level basement combines three conventional parking levels with six automated levels, accommodating 327 vehicles using technology from German firm Lödige Industries.

[smartcode_project:default project_id=5743 project_image_fid=925]

The riverfront address puts The Lennox close to much of central <a href="https://www.apartments.com.au/developments/parramatta-nsw-2150">Parramatta</a>'s existing infrastructure, including Parramatta Station, Westfield Parramatta, Parramatta Park, and the Church Street dining precinct.

The remaining apartments form part of a limited release secured by Equitifund, following the sale of the majority of residences before and shortly after completion.

The regulatory environment around NSW apartment construction has changed considerably since the defect cases that reshaped public discussion around the sector. For purchasers, however, regulation is only one part of the equation. The ability to investigate a building's history, review its strata position and, where possible, inspect what has actually been delivered remains central to making an informed apartment purchase.

At The Lennox, its completed status provides that opportunity before contracts are signed, while Strata Surety adds a financial backstop against special levies beyond the protections already provided under NSW strata law.

[smartcode_project_cta:default project_id=5743]

Joel Robinson

Buying with confidence: What NSW apartment buyers should check beyond the defect headlines

Too often, heritage buildings become the podium for a contemporary tower. At <a href="https://www.apartments.com.au/new-apartments/623-collins-607-623-collins-street-melbourne-vic-3000">623 Collins</a>, <a>Sterling Global</a> challenged its design team to reverse that process.

The brief to <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> was deliberately simple: "Don't design around the heritage. Design from it." It became the philosophy behind a project that draws inspiration not only from two landmark heritage buildings, but from Collins Street itself, a street layered with architectural history and civic significance.

That philosophy has shaped one of <a href="https://www.apartments.com.au/developments/melbourne-vic-3000">Melbourne</a> CBD's most considered residential projects, where the 1924 State Savings Bank and neighbouring Batman's Hill Hotel have become the architectural foundation for 623 Collins rather than remnants preserved beneath a new development.

[smartcode_project:default project_id=145324 project_image_fid=372749]

Rather than approaching the site as a blank canvas, <a href="https://www.apartments.com.au/developers/sterling-global">Sterling Global</a> saw the existing buildings as the beginning of the story.

"Sites like this rarely become available," the developer said.

"623 Collins wasn't simply an opportunity to develop a prominent CBD site. It was an opportunity to restore and reimagine one of Melbourne's important heritage landmarks while contributing to the continued evolution of Collins Street. For us, the existing buildings weren't constraints. They were the beginning of the story."

Instead of mimicking the ornate heritage architecture, Plus Studio studied the proportions, rhythm and craftsmanship of the original buildings before translating those characteristics into a contemporary 42-storey tower.

[smartcode_project:default project_id=145324 project_image_fid=372748]

"The brief challenged us to create a contemporary landmark that respected Melbourne's architectural history without becoming nostalgic," Plus Studio said.

"Rather than mimicking heritage, we sought to understand its proportions, rhythm and material language before translating those qualities into a distinctly contemporary architectural expression."

The practice says the State Savings Bank and Batman's Hill Hotel became the project's primary source of inspiration, allowing the heritage buildings and contemporary architecture to exist "in conversation rather than contrast." Generous planted terraces further soften the transition between old and new, creating elevated green spaces while reinforcing the dialogue between the restored podium and the contemporary tower.

That dialogue continues throughout the interiors, where Melbourne designer Fiona Lynch developed a material palette inspired by the idea of alchemy, balancing contrasting materials that reference both the Neo-Grec detailing of the original bank and contemporary urban living. The result is a series of spaces that feel timeless rather than trend-driven.

[smartcode_project:default project_id=145324 project_image_fid=354343]

The project will deliver 316 residences across four collections, Heirloom, Signature, Reserve and the Penthouse Collection, with each responding differently to its position within the building, from the restored heritage podium through to the upper levels of the tower. The Heirloom Residences retain defining heritage elements including original heritage windows, generous proportions and high ceilings, while the tower introduces contemporary homes with expansive layouts and elevated views.

Amenities have likewise been designed to support long-term city living rather than short-stay convenience. Residents will have access to concierge services, wellness facilities including a pool, cold plunge, sauna, steam room and gym, alongside private lounges, entertaining spaces and dedicated resident clubs.

Sterling Global says that approach is resonating with buyers seeking permanence rather than novelty.

[smartcode_project:default project_id=145324 project_image_fid=354347]

According to the sales team, purchasers are looking for enduring architecture, generous floorplans, heritage character and long-term value, with many commenting that 623 Collins "doesn't feel like another apartment development" because of the way the architecture has been curated around the site's history.

Situated on the prominent corner of Collins and Spencer streets, the project occupies one of Melbourne's most recognisable gateway sites, marking the western entrance to the city's best-known street. For Sterling Global, it also reflects a broader shift in city-making.

"Rather than maximising development yield, the project embraces adaptive reuse as a design philosophy, allowing heritage to inform architecture, interiors and the overall resident experience," the developer said.

"The result is a building that feels uniquely connected to Melbourne."

[smartcode_project_cta:default project_id=145324]

How Sterling Global designed 623 Collins from Melbourne's history

Avant Townhomes is adding to Ivanhoe’s family-sized housing options with <a href="https://www.apartments.com.au/new-townhouses/three-82-ivanhoe-382-upper-heidelberg-road-ivanhoe-vic-3079">Three 82</a>, a collection of just 16 four-bedroom townhomes on Upper Heidelberg Road.

The <a href="https://www.apartments.com.au/developers/intrapac-property">Intrapac Property</a> townhome division has taken a contemporary approach to the traditional family home, pairing larger floorplans with the lower-maintenance format of a townhouse.

[smartcode_project:default project_id=152069 project_image_fid=374394]

Designed by <a href="https://www.apartments.com.au/architects/arcadia-studio">Arcadia</a>, with landscaping by Landsite, the homes feature generous open-plan living and dining areas that connect directly to outdoor spaces, with layouts also designed to maximise natural light and privacy.

Natural stone is used throughout the interiors, including in kitchens that pair stone surfaces with bespoke cabinetry, considered storage and SMEG appliances.

The four-bedroom layouts include built-in wardrobes and a main bedroom with its own ensuite, while family bathrooms service the additional bedrooms. Each home also includes a lock-up double garage and intercom entry.

[smartcode_project:default project_id=152069 project_image_fid=374399]

Energy efficiency has been incorporated into the design through solar panels, double glazing and reverse-cycle heating and cooling, with the homes targeting 7-star energy ratings.

Rather than incorporating extensive communal facilities, Three 82 has been conceived around private residential amenity, with the 16-home scale keeping the focus on individual homes and their own indoor and outdoor spaces.

The development is located at 382 Upper Heidelberg Road, around one kilometre from Ivanhoe Village's cafés and retail and a short drive from Eaglemont Station and Ivanhoe Station.

[smartcode_project:default project_id=152069 project_image_fid=374393]

Several of Ivanhoe's established schools are also nearby, including Ivanhoe Girls' Grammar and Ivanhoe Grammar School. The address also provides access to the suburb's parklands and the wider Yarra River corridor.

<a href="https://www.apartments.com.au/project-marketer/nelson-alexander">Nelson Alexander</a> has been appointed to handle sales.

Construction is underway and progressing well, with Three 82 currently tracking toward completion in Q2 2027.

[smartcode_project_cta:default project_id=152069]

Three 82 brings boutique four-bedroom townhome collection to Ivanhoe

Builder-developer&nbsp;<a href="https://www.apartments.com.au/developers/graya">Graya</a> has secured a prime Newstead site from fellow developer Fraser, subsequently lodging plans for The Silo, a major mixed-use residential project in Newstead designed around a new public laneway linking the James Street precinct with the wider Gasworks and Newstead neighbourhood.

Proposed for the corner of Chester and Morse streets, the <a href="https://www.apartments.com.au/architects/bureauproberts">Bureau^Proberts</a>-designed project places its strongest emphasis at ground level, where retail, landscaping and a new cobblestone pedestrian connection would open the site to the surrounding neighbourhood. The design team describes The Silo as “more than a residential building”, positioning the development as an extension of Newstead’s public realm rather than a standalone apartment tower.

“A new cobblestone laneway and landscaped connection between James Street and Gasworks unlock a missing pedestrian link, improving walkability and stitching together two of Brisbane’s significant urban destinations,” Bureau Proberts said in its Urban Design Report.

<img alt="First look: Graya plans The Silo as new pedestrian link between James Street and Gasworks" data-entity-type="file" data-entity-uuid="0ea1b06a-75f5-40a5-b2c5-33c97bc86052" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/silo%20bldg.png?VersionId=KmjsAtNePu57_B31EM_DJ5T6KPJHtcmo" />

The Silo is planned as a mixed-use development incorporating apartments alongside a bar and centre activities including food and drink outlets, indoor sport and recreation, office and retail uses.

Architecturally, Bureau Proberts has conceived the building as a collection of vertically expressed, stepping forms rather than a single uniform tower. The composition rises from an articulated podium before being broken by a triple-height landscaped recreation level, with the upper section becoming more compact before terminating in a landscaped rooftop garden.

The project's name and architectural language draw directly from Newstead's industrial history. Patterned off-form concrete is proposed as the principal façade material, complemented by slender metal rod balustrades and extensive planting. The cylindrical and vertically ribbed elements give the building its silo-like expression, while curved balconies and planted edges introduce a softer subtropical layer.

“The Silo reinterprets its robust forms, scale and materiality through a contemporary subtropical architectural expression, creating a building that acknowledges its industrial legacy, while responding to the way the precinct is occupied today,” Bureau^Proberts said.

The recreation level is one of the defining breaks in the tower. Plans include a lap pool, mature subtropical planting and shared resident facilities within an elevated communal garden. Landscaping continues through the podium and onto the rooftop, where a further garden forms what the architects describe as a “subtropical crown” to the building.

<img alt="First look: Graya plans The Silo as new pedestrian link between James Street and Gasworks" data-entity-type="file" data-entity-uuid="f8451036-35a4-49a9-8d88-2ef4438eba3d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Silo%20Lane.png?VersionId=h8N31_rYmCEqoNrpt4kbYVQhJGZn60LH" />

At street level, the development has been designed to establish a more permeable block. Retail and hospitality tenancies address the public realm, while landscaped pedestrian spaces lead into the new laneway connection. Renders in the design report show the proposed “Silo Lane” as a substantial opening through the podium, framed by cylindrical concrete forms with cascading planting above.

The Silo continues Graya's move into larger apartment developments after building its reputation across high-end residential projects in Brisbane and the Gold Coast.

Graya buys Frasers Newstead site, plans The Silo between James Street and Gasworks precincts

<a href="https://www.apartments.com.au/developers/wickton">Wickton</a>’s completed Linacre Rise development in Hampton is giving Bayside downsizers the opportunity to move into a spacious apartment near the beach, with the developer covering stamp duty for a limited time.

The 27-residence development has been designed for buyers who want to simplify their living arrangements without giving up the space, warmth and quality associated with a long-term family home. Most apartments have already been secured by Bayside locals, leaving a select collection of two and three-bedroom residences and penthouses available.

Two-bedroom apartments are priced from $1.275 million, three-bedroom residences from $2.25 million and penthouses from $3.375 million, with the completed homes available to inspect and move into now.

[smartcode_project:default project_id=95289 project_image_fid=366760]

<a href="https://www.apartments.com.au/buildings/linacre-rise-hampton-8-10-linacre-road-hampton-vic-3188">Linacre Rise</a> occupies an elevated position on one of <a href="https://www.apartments.com.au/developments/hampton-vic-3188">Hampton</a>’s quiet, tree-lined streets, around 250 metres from the bay and 500 metres from Hampton’s village centre. Its setting gives residents access to the beach, local cafés, shops and Hampton Train Station while retaining the feel of an established residential neighbourhood.

Architecture and interiors by <a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a> draw on the warmth and permanence of traditional brickwork, with the building integrated into terraced landscaping by <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick</a>. Ground-floor apartments are elevated above the street and include private garden courtyards, while several upper-level residences have generous balconies and outlooks toward the bay.

Inside, the residences favour natural materials and generous proportions. Herringbone-pattern European oak flooring, natural stone benchtops, premium joinery and Swiss V-ZUG appliances are among the key inclusions, while integrated storage has been incorporated across kitchens, bathrooms, studies and living areas.

The kitchens have been planned as practical spaces for both everyday use and entertaining, with substantial island benches, detailed cabinetry and adjoining dining and living zones. Full-height wardrobes, plush bedroom carpeting and carefully considered lighting reinforce the residential character Wickton sought to retain for buyers moving from larger homes.

[smartcode_project:default project_id=95289 project_image_fid=366769]

A Linacre Rise purchaser said the completed apartment had delivered the space, outlook and construction quality they had been seeking.

“The unit is very light, has views to die for over the bay, all construction materials and fittings are premium quality, we have secure parking for three cars, EV charging at very competitive rates, the neighbours are friendly and there is just a lovely ambiance about the place,” the purchaser said.

Environmental features include solar panels, shared electric vehicle charging stations, rainwater harvesting for toilet flushing and landscape irrigation, double-glazed windows and water-efficient fixtures and appliances.

[smartcode_project:default project_id=95289 project_image_fid=366762]

The development was built by Balmain &amp; Co, with Wickton managing the broader development process through its in-house team.

For downsizers, the project’s completed status removes much of the uncertainty associated with buying off the plan. Purchasers can inspect the finished apartments, understand their outlook and proportions, and move in without waiting for construction to conclude.

The remaining selection includes north-oriented balconies, corner configurations and penthouses with elevated bay views. The developer-paid stamp duty initiative is available for a limited time, with potential savings of up to $200,000 depending on the residence purchased.

[smartcode_project_cta:default project_id=95289]

Limited-time stamp duty offer at completed Linacre Rise apartments in Hampton

Prominent New Zealand apartment and hotel operator, <a href="/developers/safari-group">Safari Group</a>, is offering up a prime investment opportunity for Australians to purchase off the plan in one of the world’s most popular ski destinations.

They recently took to market Mountain Oak Queenstown Apartments, in the growing precinct of Remarkables Park in Frankton, near the airport and at the foot of The Remarkables - the mountain range the locals like to call “The Remarks”.&nbsp;

Sydney investors have shown interest in the one, two and three-bedroom apartments that secure high-season occupancy six months over the year, primarily over summer and winter months.

They average 90 per cent occupancy across their portfolio over January, February, March, August, November and December, while shoulder season months of April, July, September and October are still occupied 70 per cent of the time, with the growing appeal of Queenstown becoming not just a hotspot for the snow, but a lifestyle destination.

Even in the low seasons of May and June, occupancy levels reach around 40 per cent.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_auto/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Ext_Cam15_Sunny.jpg?VersionId=SJAROUM_1s.Tr5ciMk4EEj5oAt_Vewmv" />

Safari’s Safari Hotels arm can also manage the holiday letting for an investor, from the listing on holiday accommodation websites such as Airbnb and Booking.com to the cleaning and maintenance of the investment. They’ve been in the short stay management business for 15 years and offer 24/7 support for investors, an important convenience benefit for any overseas investor

Another major drawcard for Australians is that New Zealand doesn’t have a stamp duty policy - so the entry price of NZ$639,000 (AU$586,000), is all that is payable on completion.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/313_Livingv2_WEB.jpg?VersionId=nV229fM0ZeYpoxOrX372HyGjfwY_LR8c" />

Safari is starting construction of the 141 apartments in Q2 this year, with a two-year build estimated to complete in mid-to-late 2027.<img alt="" data-entity-type="" data-entity-uuid="" height="15" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXczFpFAb7WuA6f4f9TtKWcqXyNwR8qqtakWv352ERkpqNlP3KwIo8YKxw67jZNHfpjEGIZGv5MQTbnvLZwNt8iu9IVdOrswOjCvBZ4zhSoOOLrpt6etVEZTN1gkBho0r_R72zdHNA?key=yq3daOanqHSb88QFd8jGYKdb" title="Click and drag to move" width="15" />​

The apartments will feature modern amenities and contemporary designs with expansive windows capturing sweeping views of The Remarkables mountain range.&nbsp;

Interiors are equipped with modern finishes, premium appliances, and secure electronic key-locked doors, ensuring a comfortable living experience for residents and guests alike.

With its strategic location near Coronet Peak and Cardrona Alpine Resort, as well as key retail and dining precincts such as Market Street, Five Mile Shopping Centre, and Remarkables Market, Mountain Oak offers a strong proposition for investors seeking high rental yields and capital appreciation in one of New Zealand’s most sought-after locations.&nbsp;

Queenstown’s sustained demand for visitor accommodation and rental properties is underpinned by a shortage of housing options, attracting both local and international buyers.

Safari Group offers low-touch investment proposition in Queenstown’s popular ski fields district

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GUEST OBSERVATION
The Abbott government is preparing to give Sydney’s WestConnex road project a <a href="https://news.smh.com.au/breaking-news-national/westconnex-to-get-2bn-in-budget-20140508-37wzp" target="_blank">A$2 billion boost</a> in this week’s federal budget, part of a broader $10 billion <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2014-05-08/government-to-detail-road-funding-and-detention-centre-closures/5437748" target="_blank">infrastructure package</a> aimed at boosting productivity and private sector investment.
Congestion in Sydney continues to escalate with gridlock on roads impacting passenger and freight logistics. The persistence of this situation reflects poorly on project selection and asset management processes, along with distortions that have arisen from poor interactions between the Commonwealth and the states.
Reform is urgently needed where there is less focus on ribbon cutting and more use of well-targeted “pinch point” interventions.
For example, removing congestion and bottlenecks from existing infrastructure along with shifting a small amount of demand from the peak to the shoulder period can often have superior productivity impacts compared with building expensive greenfield assets.
The school holiday effect on roads is an example of this point, when there are better traffic flows when less than 5% of traffic is absent in the peak. Surely there must be a way to win the community’s confidence that we can make the peak hour work better by shaping demand through means other than just pricing. Changing school opening times and retail operating hours could be a starting point.
Thinking beyond roads
While NSW has a strong case to build more new infrastructure like WestConnex and North Connex; it must use these once in a lifetime opportunities to do much more than build a new road.
The reality is the Sydney of today and yesterday is simply too “land hungry” to be sustainable into the 22nd century.
The appetite for land, unchecked with proper pricing signals for the provision of infrastructure has seen an un-virtuous cycle demanding ever more capital and diminishing return.
Many Sydney-siders have sought relief from escalating land prices on the city fringes, and have done so without the benefit of any genuine choice on where else they could live. Spacious residences on the fringe compare poorly in their mind to the expensive “compact” living of the inner areas.
Important projects like WestConnex can be a catalyst for triggering a new wave of innovative investment, that is, if we consider WestConnex the road project and WestConnex the urban revitalisation project.
A critical question that needs to be answered is how much extra housing and urban revitalising can and should we expect from WestConnex?
Despite the best intentions of those tasked with delivering WestConnex the public documentation suggests that the A$11.5 billion price tag will only deliver 25,000 new strategically located residences for Sydney over 20 years.
Sydney requires at least 800,000 new residences by 2050.
Given that WestConnex is developing such a valuable artery for the city, can it do more?
The first step will require governance model that breaks down traditional administrative silos and enables integrated land use and transport planning to occur.
Productivity matters
The objective of lifting state productivity has been missing from project planning in the past, making it difficult for governments to be purposeful and consistent in their infrastructure decisions in recent decades.
To accommodate the extra three million people by mid-century in NSW, the stock of transport infrastructure will need to either expand by 60% or its productivity must lift by a similar magnitude.
Obviously, it will be some combination of the two.
But anyone flying into Sydney can see that there is not a lot of room for new roads and rail systems. So productivity is going to matter a great deal.
To that end the regulatory system requires reform, as it must provide the right price signals and incentives to make the best use of existing infrastructure. This means a willingness to allow prices to reflect full cost recovery for the infrastructure provided.
Tolls are an option, but a toll should always be a fee for a defined level of service, and the community has the right to expect choice in the services available. The problem is that infrastructure often fails this test to the detriment of business and community confidence.
Tolls need to be justified
It is notable that the M1, M2, M4 and M5 toll roads in Sydney all originally demonstrated great benefit to commuters with faster travel time. But the reality is that now each of these toll roads has a peak hour exceeding 10 hours per day; slow speed and uncertain travel time is the norm.
To address this situation, state and federal infrastructure agencies need to enshrine customer service benchmarks that govern lifetime performance of major assets and networks. Government and the private sector concession holders will then require a framework to sustain them together.
Citizens living in our global cities expect globally competitive transit times during the peak hour. But the reality is Sydney has an average commute speed in peak hour that is 17% lower than London, at just 50km/h, and Melbourne is only marginally better.
Given Sydney and Melbourne are small cities by comparison to London, this is a concerning signal about the health of the road transport system.
Using tolls to help fund transport infrastructure is reasonable but without service benchmarks such as minimum speed guarantees in the peak then commuters are not assured of value for money; a toll becomes just another tax.
Tolls and user charges are not a panacea without fundamental institutional reform. Infrastructure must perform a service to the community that is relevant and compelling in order to justify a user charge in the first place. This is one of the missing ingredients to a successful infrastructure future.
Garry Bowditch is CEO, SMART Infrastructure Facility at University of Wollongong.
Garry Bowditch does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>.
</body></html>

gbowditch-XhQ427ncp8

The budget will be big on infrastructure, but we need more than just roads

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Cameron Kusher of RP Data drew the ire of a few pundits recently as he highlighted a number of points as to <a href="/expert-insights/buying/slight-fall-in-number-of-negatively-geared-property-investors">why negative gearing won't be abolished</a>.
There are four main points which advocates put forward in favour of abolishing negative gearing:
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<li>
Rents wouldn't rise Nobody knows for certain whether this is actually true. But let's face it, the inevitable hand of self-interest means that if negative gearing rules were quarantined landlords would probably take the opportunity to at least try it on by jacking up their rental charges (cf. the colossal 57% increase in rents in Sydney last time the rules were tweaked, 1985-1987). Let's suppose for the sake of argument that rents stayed flat.... 
</li>
<li>
Government would save billions This was one of Kusher's main points:  "The government only owns and rents out 4.1% of the housing stock. Conversely dwelling approvals data shows that a very small proportion of new housing approvals are granted to the public sector." Common sense dictates that if the government scraps the prevailing negative gearing legislation it would have to step up its public housing expenditure. "If negative gearing was to be removed the government would likely have to play more of a role in constructing new homes and managing a portfolio of properties. On balance, they probably play see that foregoing almost $8 billion in taxation revenue is more cost effective than developing and managing a greater proportion of housing stock." <img src="https://3.bp.blogspot.com/-HfOBu6rlp88/U24XeBqSg0I/AAAAAAAANGY/mV9lzdx4Ksg/s1600/camkusher.jpg"> So much for all the billions in tax savings: the biggest furphy of the lot. Indeed, according to contemporary commentary the principal reason that negative gearing rules were reintroduced in the first place in 1987 was the spiralling waiting list for public housing, particularly in New South Wales where numbers increased alarmingly by nearly 40% to 140,000. Again, let's suppose that the government recovered in full the foregone funds from its negative gearing subsidies and a grandfathering or quarantining of the prevailing rules proved to be fiscally neutral. 
</li>
<li>
Renters would buy up the properties sold Kusher again: <img src="https://3.bp.blogspot.com/-_nBJi-3W908/U24KdlkeXuI/AAAAAAAANGI/Wmf9ohsWcg8/s1600/CKusss.jpg"> This is obviously true. If property investors sell their properties, are renters who have not been able to buy previously really going to be in a position to suddenly step in and buy them? That seems unlikely, unless renters already had pre-existing deposits and closing costs ready to roll. But again, let's suppose that investors sold their properties and renters somehow did find the deposits and the appropriate financing to buy up the surplus stock with no associated decline in lending standards (also unlikely).  This is where the housing affordability arguments become circular and contradictory... Higher home ownership rates? On the one hand, people say "we should be like Germany with its stable housing market where most people rent" and on the other they argue "renters should be able to buy into the property market". One or the other argument might make sense, but I can't see how they both can. Certain economists believe that artificially pumping up home ownership rates beyond their natural levels promotes boom/bust cycles.  Look at countries where home ownership rates are artificially high, such as Singapore, where dwelling prices are up by 60% since 2009. Hardly a model for affordable housing, and rents are preposterously high in the city too (at least, they have certainly seemed to me to be when I've visited friends in the city - I'm happy to stand corrected on this point if it's incorrect on a city-wide basis). Britain too experimented with making home ownership a part of the very fabric of society through Maggie Thatcher's selling off of council houses, pushing UK home ownership rates to exceptionally high levels of around 70% by the end of the century. This all seemed to be a tremendous success when house prices were booming in the 1980s (and again in the 1990s and first half of the 2000s) with the stakeholder economy benefiting from an unprecedented boom in credit and wildly exaggerated wealth effect. However, it's commonly acknowledged that the UK housing market has also been one of the most manic-depressive boom/bust markets in the world ever since ownership rates increased. Meanwhile, ownership rates until recently appeared to be in the process of heading all the way back down to from whence they came...until, that is, the government stepped in with its Help to Buy and Funding for Lending wheezes - the cycle repeats... 
</li>
<li>Negative gearing doesn't increase supply</li>
</ol>
This point is logical enough, since negatively geared properties are mostly comprised of existing housing stock.
<div>Let's disregard all of the above factors which are precluding the negative gearing rules from being quarantined.</div>
Suppose for a moment that:
(a) the negative gearing rules are quarantined or grandfathered out;
(b) a large number of property investors sell their properties;
(c) renters buy up the surplus stock increasing home ownership rates to 70%+;
(d) rents don't rise;
(e) a decline in lending standards doesn't lead to a mass of defaults when interest rates rise;
(f) no boom/bust market ensues; and
(g) dwelling prices fall by, say, 20% (which presumably is the main underlying point of this entire debate after all).
Ongoing supply? 
As I <a href="https://petewargent.blogspot.com.au/search?q=construction+costs" target="_blank">looked at here</a>, our major residential developers in Australia are not generating strong margins. Far from it in fact.
So if dwelling prices are to fall, who is going to build the new housing stock? 
If you think developers are going to do anything other than maximise shareholder returns, as indeed they are compelled to do, then you likely also believe in tooth fairies.
The Reserve Bank itself highlighted the reason why margins on multistorey apartment block residential developments are so slender: construction costs on infill sites are too high for it to be otherwise.
<img src="https://2.bp.blogspot.com/-g-Oo-rk32eU/UyzA8AHYD4I/AAAAAAAAL_o/UftvW2FtvtA/s1600/CC.gif">
This chart shows why a long drawn out fall in apartment prices in Sydney was never feasible since it would have quickly taken the price per dwelling below its equivalent replacement cost.
Land developer Stockland's (SGP) underlying profit in FY13 was hampered by weak housing conditions, with that financial period encompassing the period from 1 July 2012 when sentiment was  still in the process of picking up.  Stockland's (SGP) residentiual division recorded an EBIT margin of 19.9% in FY2013.
<img src="https://1.bp.blogspot.com/-HLTcTuf2p2A/Uyz4daslyXI/AAAAAAAAMAM/OZEeDiagq_k/s1600/stockland+resi.jpg"> The Mirvac Group (MGR) managed to improve group gross margins on its residential developments to just 22% from a desperately poor 18% in the prior year.
 <img src="https://4.bp.blogspot.com/-jAnKNC6uhSY/Uyz3uhTUatI/AAAAAAAAMAA/bqbqdKWpz8w/s400/Mirvac+margins.jpg">
<div>Lend Lease might yet prove to be the biggest basket case of the lot, the group reportedly struggling to turn a decent worthwhile ROI on some of its resi developments even at today's higher dwelling prices.</div>
<div> </div>
<div>Lend Lease's (LLC) entire Australian geographical segment is recording EBITDA of only $500-$600 million and NPAT of around only $400-$500 million from colossal annual revenue streams of  $7.5 billion plus.</div>
<div> </div>
<div> <img src="https://2.bp.blogspot.com/-DE-MRz3KKWI/Uyz5EFxBebI/AAAAAAAAMAo/hRJtqfrVRQs/s400/LL.jpg">
</div>
<div> </div>
<div>I'm sure that $7.734 billion top line figure is keeping a few execs living in the manner to which they have become accustomed, but those kind of net margins are hardly likely to see shareholders sending the champagne corks flying.</div>
Even back up at a PE of above 14, the share price is still at only at around half of its former glory.
<img src="https://chartbigchart.gtm.idmanagedsolutions.com/custom/etrade-australia/chart.asp?symb=LLC&amp;time=10yr&amp;freq=1dy&amp;type=1&amp;compidx=aaaa%3a0&amp;uf=0&amp;ma=2&amp;maval=25&amp;lf=268435456&amp;style=2061&amp;size=1&amp;comp=">
Lend Lease's FY14 H1 results for its Australian geographical segment have disappointed as development and construction profits have once again slipped back.
<div>
<img src="https://1.bp.blogspot.com/-TkgUgqpwV68/Uyz6QeInzXI/AAAAAAAAMA0/h1MHVaibJqE/s1600/LLAustralia.jpg"> </div>
<div> </div>
<div>Implications</div>
If you're not familiar with accounting convention, what this means simply is that if dwelling prices fall, developers ain't barely going to be making a profit even before financing charges, and it will almost immediately be a case of 'see you later new dwelling supply'.
Say, for the sake of argument dwelling prices fall by 20%.
You can be more or less certain that absent new subsidies, major developers would instantly put any new planned projects on ice until upwards price pressure returned. In case it's still not clear why, this table explains the basic maths:
<table border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top" width="205">
<div> </div>
</td>
<td valign="top" width="48">
<div align="center">FY13 </div>
</td>
<td valign="top" width="47">
<div align="center">FY??</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>Turnover</div>
</td>
<td valign="top" width="48">
<div align="center">100</div>
</td>
<td valign="top" width="47">
<div align="center">80</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>COS</div>
</td>
<td valign="top" width="48">
<div align="center">(80)</div>
</td>
<td valign="top" width="47">
<div align="center">(80)</div>
</td>
</tr>
<tr>
<td valign="top" width="205">
<div>EBIT margin</div>
</td>
<td valign="top" width="48">
<div align="center">20</div>
</td>
<td valign="top" width="47">
<div align="center">-</div>
</td>
</tr>
</tbody></table>
In our cities with booming population growth this would be disastrous for renters. 
<div>Even in the event of interest rates remaining at their lowest levels in a generation, developers would soon have zero incentive to build since if dwelling prices are sliding, since they'd only be breaking even before financing charges were booked. </div>
There would be no corp tax to pay since there wouldn't even be a net profit upon which to raise tax, so the government would be getting zinged on its own revenues there too...and zinged again would they be on stamp duty foregone as the supply of new dwellings evaporated.
So much for all the billions in tax savings. As for the capital gains tax take, which forms a part of the individual income tax assessment: when prices are falling...oops there goes another revenue stream
So <a href="https://www.stockland.com.au/assets/crs2013/financial-report-2013.pdf" target="_blank">when Stockland discussed in 2013</a> "the prolonged downturn in the Australian residential land market" as adversely impacting results, they aren't being facetious.
They are simply noting what is plainly the case for developers in their resi divisions - there ain't barely no money in it, which is why it has taken a significant upturn in Sydney's prices to see dwelling approvals at last begin to flow through, after a woeful lull across the past decade.
Conclusion
If dwelling prices fall over any meaningful period of time in a city such as Sydney, we would quickly see supply dry up and with a population growing at 80,000 plus per annum we'll be back into chronic undersupply territory in just a few short years.
This is why negative gearing rules probably won't be quarantined or grandfathered out.
And this also why, if affordable housing is considered to be a genuine target, the government would probably need to look at tackling supply through subsidies as I posted about <a href="/expert-insights/buying/how-to-fix-australias-affordable-housing-problem">here</a>, while at the same time easing demand through considering other property tax reform and not the NG rules.
As I've noted before though, I'm sceptical as to whether there is any real desire to make housing more affordable from those in power.
You can visit <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) or Pete's <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blog</a>.
His new book '<a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>' is out now.
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pwargent-M4siyDbqQY

If negative gearing is quarantined cities like Sydney will be facing chronic undersupply

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I am not an economist and after the release of the federal government’s Commission of Audit report this is a fact for which I am somewhat grateful.
Having stated my position on the economics involved, some of the Commission of Audit’s 86 recommendations could, it appears, from all of the commentary potentially re-shape Australia. It could re-shape many aspects of society and many aspects of Federalism, which seems a shame really given that only last year, Canberra, the seat of Federalism, celebrated its 100th birthday – just as well it’s not this year.
Part of the intention of the report was to spark a conversation about what sort of society we want to be, in particular over the next 50 years or so. And it appears that conversation has got off to a flying start. When you search ‘Commission of Audit Australia’ on Google there are already some 280,000,000 references.
I have found myself asking the very specific question of how will the report impact the residential housing market? How will the report influence buyers and developers now and over the next few years?
It might be foolhardy to venture into this territory while the report is still so new, but I want to join the conversation, and because the report will reach into so many areas of our social structure I think the conversation is urgent.
A Shift in Demographics
Over the years the market has had to live and adjust to some big issues, like the introduction of universal superannuation guarantee levy (1992), the GST (July 2000), the 9/11 attack on New York and Washington (2001) and the GFC (2007/2008).
However even these big events did not have some of the potential impacts on the very structure of government and beyond that the wider demographic of the Australian population, and it is in the potential demographic changes that a much wider topic opens up for discussion relative to housing and the development market.
And while some changes are not due until mid century, I stop today and think how in just over two decades the arrival of the superannuation guarantee levy is now, thanks in part to the growth of SMSFs, central to many aspects of the residential housing market.
And some seven years later we are still in part dealing with the GFC and so it does not take a crystal ball to appreciate that change can be both long-term and to a degree painful.
Shifts in Demand Shifts in Confidence
Post the audit report in Sydney this weekend auction clearance rates were reported at some 77%, that’s down a little on some recent weekend results, but still slightly higher than the last few months. However after the delivery of the federal budget on 13 May the combined impact on consumer confidence will come into sharp focus over the next few months.
Consumer confidence in Australia increased to 99.73 in April of 2014 from 99.46 in March of 2014 but has been on a falling trend over the last six months.
While the level of consumer confidence is a closely watched measure of the economy, shifts in demographics are far more subtle and until now have been less in focus.
It’s somewhat remarkable how the impact of the baby boomer generation has now started to consume the government’s attention, despite the fact that this age bracket was always going to cause pressure points as it moves out of work and into retirement, and the property market has been feeling the presence of the ‘boomers’ for some years now.
Demographic Touch Points to Watch
The proposed change to the retirement age, has grabbed a lot of attention because it has the potential to impact the entire population. This change could have varied and possibly unexpected effects on the housing market; delayed retirement could impact the demand for downsize opportunities, it could also force more people to consider selling sooner to fund the gap between their retirement and ability to collect the pension and linking the family home to any sort of pension means this would be a big change.
The family home would move into a different light and how a future inheritance is impacted could change the housing ambitions of many younger people. While changes to the cost of education could re-shape the sometimes already fragile prospects of first time buyers, as they have to fund a degree well into their careers. This could also lead to a lowering of employment prospects and impact the earning power and relevance of the middle class in the housing market.
While the audit did not directly comment on tax issues, there is an ongoing debate about the GST – an increase could impact the market, but if there is also a change in the relationship between the Commonwealth and the States, then we could see greater mobility and demographic changes across state boundaries.
Infrastructure and Privatisation
One clear result of the audit will be greater pressure for all governments to venture into a wholesale period of privatisation. This may well deliver some greater opportunities for the property development industry, and the potential sale of the Defence Housing Authority would be a very competitive process.
However the real test will be an assurance that a real improvement in infrastructure must result, if it does not, or if projects are badly delivered this could impact the continued recovery in the housing market.
This is a conversation set to take a lot of time and effort, and so I wanted to remind myself of what an audit of this kind sets out to achieve; "A systematic check or assessement, especially of the efficiency or the effectiveness of an organization." 
While demographics: "The characterises of a human population, especially the size, growth, density, distribution and statistics regarding birth, marriage, disease and death." 
With the audit touching upon so many key social issues, the flow onto demographics is certain and the housing market may well be impacted, at first indirectly by a possible drop in confidence, but in the long term more directly as demographics, incomes and taxes change.
The audit looks like the first step in an extended agenda of economic reform, and while there may be some unpopular fiscal measures taken in next week’s budget, it does appear that interest rates are set to remain low. Because any increase would boost the dollar and possibly shake consumer sentiment so for the immediate future property will remain attractive due to the long run of low rates.
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pchittenden-eLqUUC8TWW

How will the Commission of Audit affect the residential housing market?

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I’d rather be a seller than a buyer in Sydney in 2014. That’s my general response to a frequently-asked question: is it too late to buy in Sydney?
The time to buy in Sydney to achieve maximum gain from the recent recovery was late in 2012. Most of the Sydney locations I was recommending back then have experienced capital growth between 15% and 20% in the past 12 months. That won’t be repeated in the next year, although there will be further growth.
Some commentators have sought media profile by making the absurd statement that “the property boom is over”.
It has a similar ring to the declaration in mid-2013 that “the resources boom is over”. A year later we still have projects worth around $250 billion under construction, with major new ones (like the $9 billion Roy Hill mine and Galilee Basin projects totalling $30 billion) just getting under way, but if it makes a headline no one seems to care too much about balance or accuracy.
The claim that the “the property boom is over” is equally flimsy and made for the same shallow reason: short-term publicity and the truth be damned.
Sydney’s boom is unlikely to retain the heights of 2013 but growth continues. Melbourne is yet to reach the levels of Sydney. Brisbane and Adelaide are just getting started and are likely to feature among the growth leaders by the end of the year. Perth still has momentum and Hobart, following the election of a new state government, is set for its best year in a long time.
The thing about Sydney is that it’s a very big city, with 700-plus suburbs. There are many locations with activity created by local reasons, rather than city-wide momentum. There will be ongoing growth in specific locations for specific reasons, most of them related to transport infrastructure.
There will investment opportunities from the Badgerys Creek airport, once definitive information about flight paths and infrastructure location is known. The North West Rail Link is advancing, with impacts on real estate along its route to Rouse Hill. Ditto the South West Rail Link. WestConnex will be another game-changer, impacting suburbs such as Westmead.
So the secret to finding further growth in Sydney is to <a href="/expert-insights/investing/follow-the-infrastructure-trail-to-find-future-growth-suburbs">follow the infrastructure trail</a>.
Beyond that, investors can profit by looking outside Sydney to regional New South Wales. When capital cities boom, there is often a ripple effect out to the regions. Two cities not far from Sydney, and advancing for local reasons also, are Wollongong and Newcastle.
Wollongong has defied predictions that it would lapse into recession following economic reversals such as downsizing by Bluescope Steel. One hysterical headline suggested property values would fall 50%. But the Illawarra is the latest example of a regional community fighting back from adverse circumstances. A lot of infrastructure and property development money is pumping into Wollongong and real estate markets are rising.
Others to watch include Dubbo, Tamworth and Gunnedah, as well as Newcastle - which continues to be one of Australia’s most under-rated cities and property markets.
You can contact Terry via   <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email</a> or on <a href="https://www.twitter.com/hotspotting" target="_blank">Twitter</a>.
Image courtesy of Wikipedia/Creative Commons.
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terryryder-YECXbqmri2

Too late to buy Sydney - try Wollongong or Dubbo, Tamworth and Gunnedah, and Newcastle

<html><body>
The Northern Territory government has <a href="/expert-insights/investing/northern-territory-s-fhog-directed-to-new-builds-only-from-2015">abolished its first home owners grant for established homes</a>, extending the grant only to new dwellings from January 2015.
While announcing the changes, Treasurer David Tollner acknowledged that first home owners grants have added upwards pressure on housing prices. The government cited economist Saul Eslake’s <a href="/news/the-senates-inquiry-into-affordable-housing-six-submissions">submission to a Senate inquiry into affordable housing</a>. Eslake criticised the grant, saying that when applied to established homes, it "served to simply to exacerbate the already substantial imbalance between the underlying demand for housing and the supply of it."
According to Tollner, the unintended inflationary effects of the first home owners grant were a factor in the government’s decision to abolish the grant for established homes.
"That’s why the Territory government will direct the first home owners grant solely towards the construction or purchase of new homes from next year," said Tollner.
"By targeting the first home owners grant towards the purchase of newly built homes, the grant is more likely to contribute to growth in housing supply and employment in the construction sector."
The Territory government will maintain the payment for first home owners of established homes for eight months.
"...ultimately, we want this grant to encourage the construction of new homes, create more jobs in the residential construction sector and improving housing affordability by increasing housing stock." Tollner said.
"This is a far better result than merely creating a churn in existing dwellings that is widely accepted as having an inflationary effect on the cost of housing."
Eslake is not the first industry figure to criticise the first home owners grant. Writing on the grant last year, <a href="/expert-insights/investing/slow-demise-of-first-home-owner-grant-schemes-monique-sasson-wakelin">observer Monique Sasson commented</a>:
"The scheme is meant to make property more affordable for first home buyers. Unfortunately, experience shows that the grants don’t achieve this end.  Instead, the nominal increase in purchasing power it delivers to first home buyers transmits directly into higher prices for the properties they hope to buy.
"The real beneficiaries are the vendors of properties that first timers buy."
The Northern Territory follows Victoria, New South Wales, Queensland and the Australian Capital Territory in its removal of the first home owners grant for established properties.
 
 
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jrichardson-uRX5hFdKfN

Northern Territory government acknowledges that FHOGs for established houses have "inflationary effect"

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The National Rental Affordability Scheme (NRAS) has been debated heavily in recent weeks and the federal budget will be heavily scrutinised to see what changes, if any, will be made.
However, Property Asset Planning’s managing director Brian Chant said that he was in support of the Property Council of Australia’s executive director of the residential development council, Nick Proud, for the federal government to continue their support of the scheme.
Chant, it is noted, has sold hundreds of NRAS properties in South Australia under the name NRAS4SA.
“In South Australia we have seen little evidence of problems with NRAS which have been recently reported in The Australian newspaper and other national media,” said Chant.
YOU MIGHT ALSO WANT TO READ: <a href="/expert-insights/scrapping-nras-should-the-affordability-scheme-continue">Scrapping NRAS: Should the affordability scheme continue?</a>
Chant noted that the criticisms, which suggested that international students were benefiting from NRAS, was not an issue in South Australia.
“To suggest that the program should be wound up is short sighted and misguided. Australians consistently nominate housing affordability and supply as a top five issue and this is the one Federal Government program that aims to address Australia’s housing shortage,” he said.
“Given the success I have seen from the point of view of both investors and a tenant I see no reason to scrap NRAS now. Yes there are a few areas that need to be tightened up but lets not start from scratch with a new program to address an urgent problem.”
“Combining changes to negative gearing with a reinvigorated NRAS program will, based on our experience in South Australia, make a huge difference and very quickly,” Chant said.
Green Building Council of Australia chief operating officer Robin Mellon also agreed with the Proud’s comments.
He pointed to recent comments from Proud that claimed ditching NRAS would be throwing the baby out with the bathwater.
“Increasing housing affordability in Australia requires a range of complementary measures, together with commitment from industry and all levels of government. NRAS is a vital piece of the jigsaw – one that we can't afford to lose,” Mellon said.
An academic from a research hub has <a href="/expert-insights/investing/nras-fears-are-misplaced">also said that NRAS fears are misplaced</a>.
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jduke-EHk3XBmHkn

Property Asset Planning supports call for federal government to continue NRAS

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The Reserve Bank of Australia has noted that the strong established housing market has stimulated consumption in its latest Statement of Monetary Policy.
In its outlook for 2014-15, the Reserve Bank predicts that low interest rates will continue to support the housing market. Low rates are also expected to boost the construction of new dwellings and household consumption.
According to the Reserve Bank, a “pronounced increase in dwelling investment is underway”, with growth higher than was forecast three months ago. Increasing housing turnover is expected to stimulate renovation activity, which the Bank notes has “to date been quite subdued.”
The market for new housing remains strong, with building approvals also surpassing previous expectations. Forward looking indicators such as loan approvals and first home owner grants for new dwellings are also showing strong growth.
The Reserve Bank cites low interest rates, rising housing prices, average rental yields and first home owner grants for new dwellings as key drivers for housing investment.
Nationally, house price inflation has moderated somewhat in recent months. The Reserve Bank also notes that auction clearance rates have declined from their recent highs, while loan approvals remain stable. According to the Reserve Bank, "it remains to be seen whether these signs of tempering conditions represent a shift to a more sustainable growth rate for housing prices."
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RBA’s May 2014 statement: Dwelling investment increasing

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As of 1 January 2015, Northern Territorians looking to buy their first home will only be able to get the First Home Owners Grant if they buy new, under recently announced changed.
The current property value limit of $600,000 will be removed, and the value of the grant for building or buying new homes has increased $1,000 to $26,000.
These changes are in effect as of tomorrow.
Dave Tollner, treasurer, said that the removal of the value limit will remove the requirement that the buyer pay for a valuation of the property.
“These are practical changes that will make the grant more appealing and flexible to first home buyers that are buying or building new homes,” Tollner said.
At the moment, a $12,000 grant can be obtained for established dwellings in an urban area, or in Darwin, Palmerston and Litchfield. A $25,000 grant is available for those outside of the urban area.
These grants for established homes will be gone from next year, with hopes of stimulating new home construction and to encourage a take up of the accelerated land releases.
“By targeting the first home owners grant towards the purchase of newly built homes, the grant is more likely to contribute to growth in housing supply and employment in the construction sector,” said Tollner.
Those looking to buy an existing dwelling have an opportunity for the next eight months to take advantage of the existing grant.
“This will ensure an orderly transition and allows buyers who are currently in the process of buying a home, or intending to do so in the near future, with sufficient opportunity to take advantage of the FHOG as part of that purchase until the end of the year,” he said.
“But ultimately, we want this grant to encourage the construction of new homes, create more jobs in the residential construction sector and improving housing affordability by increasing housing stock.”
In announcing this decision, the government acknowledged that providing a grant for existing property is <a href="/expert-insights/investing/northern-territory-government-acknowledges-that-fhogs-for-established-houses-have-inflationary-effect">“widely regarded” as contributing to higher property prices</a>, noting economist Saul Eslake’s comments.
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Northern Territory’s FHOG directed to new builds only from 2015

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Calling the increase in strata developments and land sales in Western Australia a “boom”, Consumer Protection has provided some clear guidelines for prospective off the plan buyers.
Revealing a booklet to buying off the plan on their website, acting commissioner for Consumer Protection, Gary Newcombe, said that the biggest risk is if the development fails to go ahead as planned.
“For this reason, it is absolutely essential that buyers ensure that any deposit they pay up front is held in a designated trust account by an independent party such as a real estate agent until the property is ready to settle,” Newcombe said.
“When buying off the plan it is also important to know the status of any planning approvals, the likely timelines for these being settled and what happens if approvals are not granted within acceptable periods.”
He noted that the contracts for developments are usually created by the developer and their agents, and so there’s a risk that the developer’s interests are protected but that consumers’ are not to the same extent.
He also said that buyers should consider whether their own circumstances may change, and then affect their ability to fulfil their contractual requirements.
 “There might be changes in the buyer’s financial situation, interest rates may rise and property values may fall – all factors that will affect their ability to get finance when settlement time comes many months or even years down the track,” he said.
“The risk of a buyer defaulting could mean their deposit is lost and the developer could claim other damages and losses.”
He warned that their guidelines should not replace legal advice.
The top seven questions from the guide:
<ol>
<li> What are the pros and cons of buying off-the-plan? 
</li>
<li> Who should hold the deposit and to whom will interest, if any, be paid? 
</li>
<li> What happens if the buyer can’t go through with the deal, or the development doesn’t proceed as planned? 
</li>
<li> Can the developer increase the price of the land or property after the contract with an agreed price is signed? 
</li>
<li> Can the quality of the property be guaranteed and what happens if the builder changes the plans? 
</li>
<li> What’s at risk if the buyer can’t get finance by the settlement date? 
</li>
<li> Under what circumstances can a buyer pull out of the contract without any penalty?</li>
</ol>
Source: Consumer Protection
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Seven questions every off the plan buyer should be asking

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Treasurer Joe Hockey will tomorrow announce the Abbott government’s first federal budget.
The Coalition pledges to return the budget to surplus by 2023-24. With talk of a <a href="/expert-insights/investing/australia-s-economy-is-healthy-so-how-can-there-be-a-budget-crisis">budget “emergency” or “crisis”</a>, <a href="/news/john-symond-fears-fallout-from-overly-tough-federal-budget">some are worried that the government will deliver a tough budget</a> to the detriment of the economy. 
Here's what the experts think of the prospective federal budget and the impact it will have on the country's housing sector.
<img src="/images/2014/05/12/rogers-profile.jpg" alt="" style="float: right;">DALLAS ROGERS - Research Fellow, Urban Research Centre at University of Western Sydney
It’s worth remembering on budget night that we all live in subsidised housing. The great Australian dream to own a house has long been underwritten by the great Australian housing subsidy. Whether you are a public housing tenant, a private renter or a homeowner, chances are your house was subsidised through a rental subsidy, housing grant or taxation credit. There will be housing winners and losers on budget night.
It’s not looking good for public and social housing subsidies this budget. The Commission of Audit urged the Commonwealth to limit its involvement in public and social housing by providing rent assistance to income support recipients. If Hockey followed through with these recommendations social and public housing tenants would have to pay market rent for their currently subsidised housing. The National Rental Affordability Scheme would go too. This would be bad news for housing equity. The frail and elderly, those with carer responsibilities or complex medical needs, or very low-income Australians in public or social housing would be hit hardest.
Comparably, The Commission of Audit was silent on private housing taxation. Private housing subsidies are like chocolate, we know that we should use them in moderation but we just cannot cut back. We often pretend that they are not subsidies at all. AMP <a href="https://m.afr.com/p/national/big_talk_small_acts_on_bn_budget_AkRrPW2xaygUjpIodRK8IK">chief economist</a> says ‘changes to negative gearing or the CGT exemption on the family home would be seen as “unAustralian”’. <a href="https://grattan.edu.au/">Grattan Institute</a> data suggests that more than 90 per cent of private housing subsidies go to property owners over private renters (see below). Including the roughly $30 billion pa capital gains tax benefit for owner-occupiers and the $7 billion pa negative gearing benefit for landlords. Most tax concessions do not generate new housing stock. They all, with the addition of the first homebuyers grant, drive up property prices. This is good for homeowners and developers, and bad for renters.
<img src="/images/2014/05/12/grattan.jpg" alt="">
If we want housing equity and socially just cities we need to rethink public and private housing subsidies. There is scope for innovative private sector models and taxation policy – e.g., National Rental Affordability Scheme – that provide additional housing stock. But we will always need housing tenure forms that operate outside the market for the poorest and most disadvantaged Australians.  
You might also want to read: <a href="/expert-insights/joe-hockey-treating-australian-public-as-fiscal-fools-ahead-of-the-federal-budget">Joe Hockey treating Australian public as fiscal fools ahead of the federal budget</a>
 
SHANE OLIVER - Head of investment strategy and chief economist, AMP Capital <img src="/images/stories/2014/02/21/shane-oliver-profile.jpg" alt="shane-oliver-profile" style="float: right;">
There is a possibility that negative gearing might be tightened, but at this stage I’d only put it in the possibility camp. I think it’s probably unlikely. I can’t see any other changes that directly affect housing. The government has virtually ruled out including family homes in the means test for pensions, and it’s unlikely that they’ll remove CGT tax-free status for the family home.
Most implications will be indirect. That’s the biggest risk. The government is fairly intent on significant fiscal tightening to deal with the “budget emergency.”
That means tougher means testing and reducing eligibility criteria for family benefits. We might see possible tax hikes for high income earners and numerous cuts to the level of government spending. Those changes could adversely affect spending power in the economy and could affect housing demand. The risk is that they’ll get carried away. There’s tough budget talk prior to every budget. Often things aren’t quite as tough as you’ll expect, but the rhetoric has been quite a bit tougher this time.
[The Coalition] have painted themselves into a corner, saying that there’s an emergency. Having talked up the budget crisis, there’s a bit more pressure than normal for the government to deliver.
There is a potential upside for property in the sense that if the budget is too austere and too aggressive with cut backs, it may mean lower interest rates for a longer period of time. [AMP Capital] have predicted a September or October rate hike, but we’d be inclined to think that that won’t occur if the budget is too tight. And if upper income tax rates rise, people might more inclined to negatively gear.
You might also want to read: <a href="/expert-insights/what-do-we-need-to-see-from-the-federal-budget-the-experts-have-their-say">What do we need to see from the federal budget? The experts have their say</a>
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ROBERT SIMEON - Director of Richardson Wrench Mosman and Neutral Bay <img src="/images/authors/fullbody/Robert-Simeon.png" width="150" style="float: right;">
Historically real estate has been a minor player come budget time. The government of the day prefers to address the industry from more of a macro positioning, given that is by far an easier option when compared to a microeconomic analysis. For all intents and purposes, if the real estate/housing demographic were that essential then it would be fair to say there would actually be a designated Housing Minister which is not the case with the Abbott led government.
Landlords and investors can breathe a sigh of relief - negative gearing won’t be touched, although given the recent Commission of Audit it would be fair to say at some time in the future this will come under much greater scrutiny. When one looks at the real estate/ housing markets there is the one common theme; record high rents and record high average prices across the board. Again this is easy to disguise as this will be camouflaged with macroeconomic dialogue.
Infrastructure will be front and centre given the recent COAG meeting endorsed the compilation of an asset sales list that would see them attain federal funding based on these sales for a massive infrastructure spend. The only problem with this is that the infrastructure expenditure is already decades behind where it should be today.
Sadly there won’t be any incentives for the housing construction industry which is seriously lagging behind where it should be today – this is reflective with what is happening to property values and rents. The Australian Bureau of Statistics (ABS) released their building approvals data to March 2014. It showed that in the past year 188,070 houses/units were approved yet the real figure is that Australia needs to be building over 300,000 each year to get close to meeting demand.
The latest ABS figures identify that total household debt in Australia stands at $1.84 trillion as at December 2013 – this is equivalent to $79,000 for every person living in Australia and is the highest amount ever recorded for the last 25 years.
Foreign ownership of Australian residential real estate should and must come into budget considerations given the government restrictions are weak and at best need tightening.
As I mentioned previously, all the machinations pertaining to the property industry will be covered with macroeconomic spin. The budget is all about the government’s financial positioning which will be hinged to weak productivity, an ageing population and falling terms of trade.
So expect the focus to be on government debt and how we all will be expected to lend a hand to correcting this economic anomaly. Just don’t mention microeconomics.
You might also want to read: <a href="/expert-insights/investing/budget-week-is-all-about-huff-and-puff">Budget week is all about huff and puff</a>
LEANNE PILKINGTON - General Manager, Laing+Simmons<img src="/images/2014/05/12/pilkington-profile.jpg" alt="" style="float: right;"> 
Affordability issues have come to the point where they are more than simply a barrier for first home buyers looking to enter the market. People in this bracket are increasingly dismissing even obtaining a mortgage as a lost cause.
While existing property owners welcome reports of rising prices and investors continue to participate actively in the market, the pessimism among first home buyers is palpable. There is a definitely a feeling among this sector that property is simply a pipedream, one that might never come true.
The flow-on impacts in the coming years and decades could be huge and potentially disastrous. It’s time Governments at different levels recognise and respond to the challenges first home buyers face and to work with industry to generate new policies capable of providing optimism and driving first home buyer activity.
One of the key barriers to more first home buyers being able to participate in the market is the difficulty many have in accumulating a deposit.
Perhaps there is scope for some form of Government-backed savings scheme whereby those first home buyers serious about saving a deposit can access tax advantages or even Government contributions to match their own, be it means tested or otherwise. Another potential avenue for Government to investigate might be to enable first home buyers to access their superannuation to contribute to their deposit.
Encouraging investors to refresh their portfolios where it’s appropriate to do so might serve to release more stock to the market. While these ideas may vary in terms of feasibility and practicality, particularly as we prepare for a difficult Federal Budget, the point is clear: something needs to be done.
You might also want to read: <a href="/expert-insights/investing/the-reias-10-point-wishlist-for-the-federal-budget">The REIA's 10 point wishlist for the federal budget</a>
CATHERINE CASHMORE - Independent market analyst<img src="/images/authors/fullbody/Catherine-Cashmore.png" width="150" style="float: right;">
As we approach the federal budget, once again we have to endure another round of economic nonsense as the Treasurer tries to convince ‘ordinary’ Australians that the country is ‘running out of money’ – facing a ‘budget crisis.’
There is no evidence and no economic wisdom that indicates running a surplus is good for the economy. 
This is something <a href="https://www.youtube.com/watch?v=D0iFiUfDqSw">Steve Keen</a> does an excellent job of demonstrating in a recent lecture given in Sydney, in which he shows the inevitable consequence to GDP should our Government attempt to do so.
Economic orthodoxy stubbornly insists on austerity measures to pay down government debt by imposing onerous taxes on its working population.
There are lessons that should have been learnt following the Great Depression in the 1930s. When the government tightens its belt for no other reason than a vain attempt to ‘spruik’ a surplus, it has the unwanted effect of withdrawing money from the economy – leaving the private sector (the working class population) to pick up the slack.
Therefore “repairing the [government] budget” is not putting the fate of  Australians on “the right track.”
It is the government’s responsibility to make sure our monetary system works for the population, by spending enough money into the economy to keep employment and productivity thriving. 
Catherine Cashmore's comment is an edited extract from <a href="/expert-insights/investing/economic-nonsense-and-the-consequences-for-future-generations">her column</a>. 
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