Australia Property

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Significant scheming
2147 words
28 Feb 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Property What price can be put on selling a ticket to call Australia home? All is not well with a scheme that does just that, writes Matthew Cranston.

When Andrew Martin first stepped into a Chinese immigration office in Shanghai in early 2011 he could barely believe his eyes. On the walls were the flags of countries ranging from the very big to the very small: Russia, Canada, Singapore, Malta. Next to each was a score sheet rating their investment visa programs.

The competition for selling residency to Chinese millionaires was under way and the Australian flag wasn't even flying.

"I was bowled over by the depth and breadth, and I thought we were really behind the eight-ball," Martin says.

Fast-forward four years and Australia's flag is flying high. Our Significant Investment visa (SIV) program is just over two years old but the number of applications each month has seen it crowned as one of the world's most successful by the Migration Policy Institute. So far, 651 millionaires from around the world, 91 per cent of them Chinese, have been given the right to live and work in Australia in return for ploughing more than $3.2 billion into our weakening economy. Another $2.8 billion worth of investment is currently being proposed.

Martin - the managing director of boutique investment house Moelis and a former managing director at UBS where he ran a multibillion-dollar global infrastructure fund - has until now never spoken publicly about his role as the original draftsman of Australia's SIV program. He could see how Australia was missing out on a lucrative source of foreign capital and, it's fair to say, a lucrative new business opportunity.

The financial adviser spent about a year in front of departments and ministers, refining aspects of the visa before it was unveiled by then immigration minister Chris Bowen in 2012. The visa means anyone willing to invest $5 million into Australia can become an Australian resident.

There are none of the usual residency requirements such as proficiency in English. It's a golden ticket into Australia. Martin's firm manages more than $500 million in investments for wealthy foreigners looking to call Australia home.

This father figure of selling residency, who is proud of the scheme's success - and profiting handsomely - now warns that some operators, while complying with the law, are not acting in the program's spirit.

"We have seen a number of operators in Australia and overseas move in on the game, pushing the envelope," he says.

"Some overseas fund managers are not subject to the strict regulatory environment we have in Australia and have been offering schemes which are blatantly designed to get around the regulations. We think there needs to be a tightening-up of the rules around both products and managers."

Further tightening is indeed soon to be announced. It won't be the first time changes have been needed. And with a populist, anti-foreign investment wind suddenly blowing through Canberra, it probably won't be the last.

This is the story of Australia's experiment in citizenship for the rich. Like most of history's great flights of migration, there has been a journey of painstaking planning coloured by national political agendas, cultural sensitivities, and financial brilliance and craftiness. Fund managers and lawyers have pushed just about every boundary they can, including into the highly charged area of foreign investment in established residential real estate.

Freedom of Information applications by AFR Weekend, and interviews with key players, raise questions about whether rules to prevent SIV applicants stashing their money into established housing offshore are being circumvented. Fingers are being pointed at a number of smaller offshore fund managers especially, but there are also concerns about esteemed investment banks such as Macquarie and Credit Suisse.

It was in 2011 at Governor Phillip Tower in the heart of Sydney's financial district, when property veteran and former chairman of the Sydney Swans, Richard Colless, together with Martin, started to fathom the massive wealth pouring into nations such as Singapore and Canada from Chinese entrepreneurs using Significant Investment visas.

Meetings were convened with politicians such as former NSW minister for trade and investment Andrew Stoner and then immigration and citizenship minister Bowen. Lunches at the Chophouse on Bligh Street and top seats at Sydney Swans football matches set the scene for discussions on what would become Australia's first Significant Investment visa program.

What price to put on the right to come and live in Australia? It was the most sensitive topic Martin remembers debating. The Caribbean island of Dominica breezily sells off citizenship for $100,000 a pop, while France asks for €10 million for a 10-year resident permit.

"At one point the minister [Bowen] was testing whether it should be a higher amount than $5 million," Martin recalls. "There was a suggestion that $10 million should be the investment amount but we thought that was a stretch too far and we thought $5 million was about right and didn't undervalue our residency."

The dollar amount, the duration of the residency, whether the applicant needed to speak English and the level of business skills were all key areas Moelis tested.

And the key area for testing was China. In 2014, China had a record 152 billionaires, up almost 25 per cent from the previous year according to Forbes. They account for more than 90 per cent of all SIVs in Australia and dominate the SIV programs in Canada, the United States and European countries such as Portugal.

It was May 2012 when Bowen announced the SIV. It was welcomed with newspaper headlines such as "Wealthy to get it easier" and "Labor reaches out to the rich".

"The Significant Investor visa will provide a boost to our economy and help Australia to compete effectively for high-net-worth individuals seeking investment immigration," Bowen said at the time of its official launch six months later.

One part of the economy that's already felt the boost is professional services: the lawyers, bankers and fund managers who advise those wanting to call Australia home on where and how to put money into SIV-"compliant" investments such as government bonds, unlisted businesses and managed funds. AMP, ANZ, BT, Credit Suisse, Legg Mason, Macquarie and Moelis are all giving applicants a hand.

There has already been some tricky financial engineering. One problem has been the creation of investment schemes that allow a SIV applicant to put their $5 million in a safe and liquid asset such as a government bond, and then the money is simply lent back to them by their fund manager who holds the bond as collateral and collects a fee. The schemes are technically legal but, given there is little economic boost to Australia, they are arguably against the intent of the scheme. Macquarie Bank allows foreign investors to borrow up to 100 per cent against the value of their investment and Credit Suisse allows about 50 per cent. Credit Suisse says it checks to ensure those other purposes are legitimate investments in Australia and Macquarie says it refuses the loan-backs to be used for property.

Former immigration minister Scott Morrison announced in September last year a crackdown on these so-called loan-back schemes. Under changes to be enacted in June, complying investments will have to remain unencumbered for the entire duration of their provisional visa.

"If it's a loan-back, it is dangerous," migration agent Jennifer Kwok from AUSA Migration & Education Service says she tells her clients, adding that they shouldn't get involved. "Clients do seem to know more about other products than we do; they usually compare at least three different products before they make up their mind on which product they are going to invest in. One client of mine introduced a bank from China with a product I did not know about."

Perhaps worried Australia was not getting enough bang for its buck, the Department of Immigration and Border Protection, as well as Austrade, were last October given the task of developing a new complying investment framework to determine what types of investment under the SIV would better create real economic benefits.

Austrade has set out a proposal that will see the required $5 million no longer allowed to go into bonds or proprietary companies and instead be used only for areas such as venture capital and managed funds. Part of the reasoning behind scrapping bonds is to prevent investors from entering into loan-back schemes.

In FOI applications, AFR Weekend asked whether any illegal activity had been brought to the attention of any ministers involved in the SIV. In response, the government said no illegal activity had been identified. But there does appear to have been circumvention of the rules. Property is one of the areas that clearly needs to be tightened up.

Under the rules, established residential property is not a complying investment. Laws require non-residents to also obtain Foreign Investment Review Board approval for buying existing homes. No one in Canberra wants to be seen as allowing large amounts of foreign capital coming in and competing with local buyers for homes.

This week the Abbott government went even further than the recommendations of its own parliamentary inquiry into the issue of foreign investment into housing, announcing fees starting at $5000 to pay for greater FIRB oversight, plus steep fines for non-compliance.

However, there are schemes that appear to get around the ban. AFR Weekend has obtained documents in Chinese that purport to show how a Hong Kong-based fund manager offered a SIV applicant a way to invest in an existing property as a way to qualify for the SIV. It sets out how the applicant can invest in a fund that has separate trusts, each owning an existing property. After the applicant lives in the property for the first four years of the SIV program, the managers of the fund wind up the trusts. The SIV holder then takes their home as their cut of the investment in the fund.

One fund manager has in their promotional material an example of a palatial property at 8 Maxwell Court, Toorak, Melbourne. The fund's manager says he doesn't know why the Toorak property was in the promotional material and says no one has or is buying established residential property.

The two-storey Regency-style home was once owned by racing car identity Paul Dumbrell. He had it listed for sale at $5.5 million in early 2014. However, land titles show that a person called Mialong Li bought the property for $6 million late last year.

Demetrios Papademetriou, who co-founded the Migration Policy Institute and now helps governments in refining their investment visa programs, says the motives for wanting a SIV need to be watched very closely. "This investment is not really about making money as it is about settling in another country or getting an insurance policy if you need an alternative place to live," he says.

Many applicants want their children schooled in Australia. Gaining permanent residency allows them to enter university through the domestic education system - a lot cheaper than overseas student fees.

Papademetriou, who also helped steer America's first investment visa program in the 1990s, says integrity will be the key to a successful economic stimulating program. He believes the Australian version is one of the most stringent in the world, with only one in five applicants processed.

"Your government is clearly doing a lot of due diligence," he says. "But the due diligence has to happen not just up front, but during and after the program."

Assistant Minister for Immigration Michaelia Cash is also reminding the plethora of fund managers, lawyers, immigration agents and the applicants themselves that the federal police will be engaged in anything dodgy.

"The department remains aware there is potential for economic fraud, and assesses and refers these matters as appropriate to the Australian Federal Police," she says.

Austrade will now take over the responsibility for complying investment policy for the SIV.

It will be a key test for Trade and Investment Minister Robb to make sure that any of the program's loopholes are closed.

The government's current review, however, might introduce some unwanted changes. Duration of residency is a key one.

The government is thinking about residency requirements for spouses and children of SIV holders of 180 days a year in an attempt to make the SIV about family migration, and not just a place to park money.

However, Moelis's Martin doesn't like the sound of it. "It's a radical change. We think it will make it far less competitive globally."

$5

million

the minimum amount to bypass usual residency requirements and fulfil the Significant Investor visa conditions.


Fairfax Media Management Pty Limited

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Woah that's very smart to Wind up the trust .
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Looks like can't call them NATO anymore. Action taken. Making an example or just the beginning of more force sales? Sydney election is coming at end of the month...

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Treasurer Joe Hockey announces forced sale of Point Piper mansion Villa del Mare

Treasurer Joe Hockey announced the forced sale of the $39 million Point Piper mansion Villa del Mare, purchased by one of China's richest men in November, because it was sold in contravention to the existing foreign ownership laws.

The extraordinary measure has shocked prestige agents who had believed the purchase did not require approval from the Foreign Investment Review Board because the purchase was in the name of an Australian company.

However, a spokesman from Mr Hockey's office said the sale was an illegal purchase because Golden Fast Foods was a shelf company for the Hong Kong-based Evergrande Real Estate Group.

"If the company had sought FIRB approval it would have been rejected too because the rules are quite simple, foreign buyers are not allowed to purchase established property," said a spokesman from Mr Hockey's office.

Evergrande, which rode China's property boom in the past decade to become one of the mainland's largest real estate developers, is owned by Xu Jiayin, one of the country's most high-profile businessmen, who arrived in his private Airbus A319 last October to secure the purchase.

With an estimated wealth of 42 billion yuan ($8.5 billion), he is ranked by both Hurun and Forbes as China's 15th richest person.

He owns arguably Asia's biggest soccer club, Guangzhou Evergrande, and as a member of the Chinese People's Political Consultative Conference, is known to have close ties with senior Communist Party figures.

The sale by Ken Jacobs, of Christie's International, and Bill Malouf, of LJ Hooker Double Bay, is likely to bring into question other notable trophy home sales in recent years that were purchased in company names.

Mr Hockey's announcement follows the Federal Government's moves to enforce stiffer penalties and new fees to enforce the existing foreign ownership laws.

"Under the Divestment Order I have issued today, the company now has 90 days to dispose of the property or the matter may be referred to the Commonwealth Department of Public Prosecutions," Mr Hockey said in a statement.

According to foreign investment regulations non-residents are not allowed to buy established dwellings as homes or investments.
Virtual currencies are worth virtually nothing.
http://thebluefund.blogspot.com
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U violate the rules then be prepared to pay. This enforcement is good. What I meant by nato was the authorities can't implement guidelines as wide ranging and macro as our TDSR.
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Asian investors transforming our cities
BUSINESS SPECTATOR MARCH 16, 2015 8:33AM

Robert Gottliebsen

Business Spectator Columnist
Melbourne

AUSTRALIA is experiencing an incredible change in the population of its central business districts.

Our Asian neighbours, who are making radical long-term assumptions about the growth of the total Australian population and where they will live, are orchestrating that change.

Our second largest city, Melbourne, has been chosen to lead the way.

Melbourne has approved the construction of over 20,000 apartments to be built in the central business district over the next four years — five times the “normal” level of around 1000 a year. Construction has already started on some 7800 apartments.

In addition, there are a vast number of apartments being built in the Melbourne suburbs and many more are planned on the city’s fringe in areas like Fisherman’s Bend.

In Sydney, some 5500 have obtained approval in the CBD — less than 30 per cent of the Melbourne level. A greater number of apartments are being built in the suburbs, particularly around Alexandria (4km from the CBD) and Parramatta, which is emerging as a “second CBD”.

The number of CBD apartments approved or under construction in Brisbane is around 3000, Adelaide 2300 and Perth 1700. These are all huge increases on previous levels.

The vast bulk of Melbourne CBD developers and most of the buyers in Sydney and Melbourne CBD apartments are Asian, led by the Chinese.

Chinese banks fund many of the Asian developers and most of the apartments under construction have been bought on low deposits. The fall in the Australian dollar plus lower interest rates has effectively lowered the purchase prices for Asian buyers of all Australian property.

Accordingly, indirect beneficiaries of the Reserve Bank actions have been overseas apartment buyers who have not yet invested here, including the bulk of the CBD apartment purchasers who have paid small deposits. Further falls in the dollar will again lower the purchase prices for Asian investors and boost demand.

Some of the money coming to Australia stems from corruption but large fortunes have also been legitimately built up in Chinese and Asian property markets and the investors are diversifying.

The two most obvious reasons why Melbourne has been chosen are the education facilities in Melbourne, which are set to attract much larger numbers of Asian students, particularly given the fall in the dollar.

The second is that under the former Victorian Coalition government, permission to develop a site was much easier to obtain than in Sydney.

But Sydney’s largest apartment developer, Harry Triguboff, while bemoaning the difficulties in gaining approval all over Sydney, puts forward another reason for the much higher levels of Asian investment in our residential property.

Asians believe the Australian population is set to grow much faster than Australians anticipate.

Triguboff is in very close touch with the Asian community because they are major buyers of his apartments and they almost purchased his business.

Triguboff says this: “When Mr Rudd became prime minister, he forecast the growth of the Australian population and many people thought the number was too high. This would never happen and couldn’t happen.

I was one of those that thought that Mr Rudd was too conservative and that the population would grow even faster. The new figures show the population will grow twice as quickly as the Rudd estimates.

I still say their estimate is too conservative and the population will grow even faster. I was recently overseas and saw how many people would love to come and live in Australia. We make all kinds of rules to make it difficult for them to come. But if they are intent on coming, they will find a way. They will either come as students, investors or workers, so the population will continue to grow”.

Most of Harry Triguboff’s investment is in Sydney but it is Melbourne rather than Sydney that is to be the city changed most by the higher population forecasts. There is little doubt that the current apartment building boom is one of the reasons why unemployment in Victoria fell last month.

My Asian friends say that the Melbourne CBD is set to be a Hong Kong-style 24-hour city. The new government is set to be more cautious in giving approvals but as there are already vast amounts in the pipeline and irrespective of the long term population trends, the market is likely to be flooded in the short term — especially as all the developers mostly aim at the same market — one or two bedrooms apartments.

This means that young professionals working in the Melbourne CBD are set to be able to rent or buy reasonably priced accommodation close to their jobs.

Sydney rents are already starting to rise and constraints on supply are part of the reason why the city is in boom mode.

Business Spectator
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Chinese property buyers spend big on their children, no matter how young
Lisa Murray AFR correspondent
450 words
7 Mar 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

Shanghai | Chinese overseas property buyers have an average budget of $3.3 million to spend and more than two-thirds are willing to pay in cash, according to a Shanghai real estate website.

Australia is the second most-researched market after the United States, ahead of Britain and Canada. And investor focus is moving beyond the big cities to regional centres such as Wagga Wagga, new research shows.

Shanghai-based Juwai.com compiled the results based on 30,000 interviews with people who contacted the property portal's call centre last year.

They found 28 per cent of the buyers were younger than 34 years old and a majority were married with children. Their main motivation for buying houses and apartments overseas was investment, emigration and their children's education. The latter is increasingly important, accounting for 18 per cent of potential buyers who contacted Juwai's call centre last year.

The company's co-founder Simon Henry said one of the best examples was a Chinese client who rang to say his son was going to Stanford University and he needed to look at buying somewhere nearby for him to live. Asked how old his son was, the man replied he had just been born.

Juwai's Mandarin language portal had become a leading site for mainland buyers as well as Chinese people living overseas, attracting 2.5 million visits each month, Mr Henry said.

The most-searched cities in Australia are Melbourne, Brisbane, Sydney, Adelaide and Perth, in that order. Wagga Wagga in southern NSW, with a population of 47,000, is sixth, which could be related to its Charles Sturt University campus.

While Australia is popular, Mr Henry said 2015 was shaping as Europe's year. Chinese buyers were increasingly looking at properties in Spain, Portugal, Germany, Greece and Bulgaria, he said.

Juwai had seven clients over the past six months with budgets of more than $US100 million.

"What we are seeing on international property markets, in terms of the impact of the Chinese buyers, is just the tip of the iceberg," he said.

Chinese property consumers had become much more sophisticated over the past four years, Mr Henry said. In 2011, the people who contacted Juwai had small budgets and were focused only on US, Canada, Britain, Australia, Singapore and Hong Kong.

Last year, their average budget was $US2.6 million ($3.3 million), the average price of their first property purchase was $US940,000 and they were asking about tax and investment yields. More than 45 per cent of those surveyed were ready to invest within six months.


Fairfax Media Management Pty Limited

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Singapore real estate groups on east coast buying spree
THE AUSTRALIAN MARCH 25, 2015 12:00AM

Ben Wilmot

Commercial Property Editor
Sydney
Singapore groups on a buying spree
Mapletree is finalising what will be the first major Brisbane hotel deal of the year. Source: Supplied

Singaporean groups are swooping on key sites along the eastern seaboard, with real estate giant ­Mapletree Investments picking up a $50 million Brisbane hotel and also eyeing a Sydney office portfolio for about $250m.

Mapletree is finalising what will be the first major Brisbane hotel deal of the year with the purchase of Adina Apartment Hotel.

The acquisition is likely to see the four-star serviced apartment complex of 162 apartments on the edge of Brisbane’s CBD remain in operation. However, the Singaporean group may have the option of eventually ­redeveloping the strategic 11 Ivory Lane site.

The vendors, Toga Far East Hotels (TFE), a joint venture between Far East Hospitality Holdings and Toga Group, are selling to develop another Adina Hotel closer to Brisbane’s CBD. The hotel was listed with Mark Durran of Jones Lang LaSalle ­Hotels and Seb Turnbull of JLL’s Brisbane ­office but they refused to comment yesterday.

The vendor also declined to comment and the purchaser indicated it was on the expansion trail.

“One of Mapletree’s key thrusts in our growth plans is to grow our portfolio outside Singapore and this includes looking at opportunities in new markets such as Australia,” a spokesman said.

“We will continue to explore building Mapletree’s presence in the Australian market. We will make the appropriate announcements when we secure the deals.”

Last year, Mapletree made its first move into Australia with the purchase of a South Brisbane office building at 144 Montague Road, West End, for $93m.

Now, in Sydney, the group is understood to have entered due diligence on a portfolio of three suburban buildings worth about $250m. Property executives were uncertain about the assets but major groups, including Dexus and Goodman Group, are offloading non-core portfolios.

Meanwhile, Singaporean developer Fragrance Group is looking to buy more properties in Australia, flagging further purchases in Brisbane and Hobart.

Buying into Brisbane would bring the business, run by tycoon Koh Wee Meng, into line with fellow Singaporean developer Aspial Corporation, headed by his younger brother Koh Wee Seng, which bought in Brisbane last year.

The brothers are among Singapore’s richest businessmen, starting their ­careers running a jewellery business, a pawn-brokerage and, later, a chain of “love ­hotels”.

Both groups have rapidly grown their Australian businesses and have each unveiled plans to spin off their rapidly growing local property businesses on to the ­Catalist board of the Singapore stock exchange.
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Sydney investment still makes sense
408 words
28 Mar 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

The surge in house prices, in Sydney and in the eastern suburbs of Melbourne, has surprised.

Late last year it looked to be tempering. But the first quarter in Sydney and Melbourne seems to have been anything but temperate.

Buyers' agent David Morrell walked away from a $5.6 million auction at Kew in Melbourne this week shaking his head at the way the price had jumped 10 per cent, and warning that the market was going "as hard as ever".

Louis Christopher, the managing director of SQM Research, and one analyst to predict the Sydney boom early, has upgraded his forecast house price growth in the city to 11-15 per cent. During the week he told investors that the Sydney median house price could top $1 million this year.

But Christopher also put the surge in some perspective. It's not happening elsewhere in the country. Prices in Perth, Darwin and Canberra are weakening. Brisbane house price growth still lags well behind the southern capitals and the number of sales is slowing, not rising.

And despite all the hype, Sydney prices are still more affordable than at the peak of the last boom.

"Back in December 2003, on our valuation, the market was 55 per cent over fair market value. Today it is 25 per cent over fair value. So it is overvalued, but not to the magnitude it was in 2003," he says.

In hindsight we should not be surprised about the surge in Sydney and Melbourne. Sydney, in particular, finished 2014 with just a touch of seasonal moderation. With the rate cut in February it burst back into flames. In every week since, the CoreLogic auction clearance rate for the city has exceeded 80 per cent.

For investors, Sydney still makes sense. Despite all the cranes, the city remains chronically undersupplied, rents are still rising, and the city's economy is growing more strongly than any other. Despite the big jump in price in the past year, the number of houses up for sale is less than a year ago, and well short of the number in Melbourne.

At some point the lack of affordability will bite. In Sydney it might take an eventual rise in interest rates. But the research director at CoreLogic RP Data, Tim Lawless, still expects the national rate of house price gain to finish 2015 below the 7.9 per cent of 2014.


Fairfax Media Management Pty Limited

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House price bubble trouble not a national problem
JAMES GLYNN THE AUSTRALIAN APRIL 06, 2015 12:00AM
Print

House prices across Australia.
House prices across Australia. Source: TheAustralian

Hand-wringing over soaring house prices and the instability it might one day pose for the country’s households, banks and wider economy remains a central part of Australia’s economic narrative.

From month to month, the same questions are being asked. Is there a bubble? What will happen if property investors borrowing millions and betting on endless market gains aren’t reined in? And looking back at the capitulation of international property markets and economic downturns that culminated in the global financial crisis in 2007-08, could it happen here?

While not dismissing those fears entirely, it’s time to rethink and recalibrate the extent of the problem, and what it means for monetary policy.

Sifting through the latest batch of data on house price growth, it could be argued that there is no national house price problem. And if it does exist, it’s almost exclusively a Sydney problem.

House prices grew nationally by a modest 7.4 per cent in the year to March, according to CoreLogic RP Data, its slowest pace since September 2013. By comparison, Sydney prices raced up by 13.9 per cent over the same period.

In Melbourne, house prices grew by a more modest 5.6 per cent over the year to March. In Perth, the former resources boom town, house prices fell 0.1 per cent year-on-year to March. Even sunny Brisbane could only chalk up growth of 2.7 per cent.

“Sydney’s growth trend appears to have disengaged from the rest of the capital city housing markets,” said Tim Lawless, head of research at CoreLogic RP Data.

If Sydney is the only problem child, it should temper the way financial markets and economists are assessing the risks associated with the housing market. At the very least, it should adjust thinking on how the Reserve Bank will proceed on interest rates over the medium term.

If it’s just Sydney, which accounts for 20 per cent of the country’s housing stock, it must offer more freedom to the RBA to lower interest rates, which it looks likely to do at a policy meeting tomorrow, taking the official cash rate down to a record low 2 per cent, from 2.25 per cent.

Why Sydney?

Sprawling from the mouth of Sydney Harbour to the Blue Mountains about 50km to the west, the city is Australia’s largest metropolis, its financial hub, and a melting pot that successfully brings together many different cultures. It attracts ­people from all parts of the socio-economic spectrum, with the more wealthy crowding the eastern suburbs or the many quiet coves that line the harbour.

Known as the gateway to Australia, Sydney is the country’s global city, where competition for housing can be fierce. Housing there thus commands a premium over other capitals.

To be sure, much of what is happening in Sydney is just catch-up after an extended period of inactivity from 2004 onward.

Through that time, a once-in-a-century resources boom flared, shifting resources and capital towards the iron ore and gas projects in Western Australia. Perth house prices shot up to rival Sydney’s. Indeed, Sydney and Perth prices were nearly on par in 2007.

With the end of the boom times, the traditional east-west house price divide is now being restored. Sydney is back on top as Perth struggles amid a collapse in the iron ore price this week to 10-year lows, while new investment is drying up as China’s economy slows.

So a lot of what is happening in the national property market makes sense. In some ways it’s a return to normality, and thus should be viewed as something less sinister than a monster threatening to crash the economy. Add in record low interest rates, a falling Australian dollar, and a desire of wealthy Chinese to locate families near Sydney’s better schools and colleges, and you get market pressure and rising ­prices in the country’s oldest city.

“Outside of Sydney, there really isn’t any house price growth,” said Adam Boyton, chief economist at Deutsche Bank Australia.

“For 10 years after 2004, Sydney house prices underperformed inflation. If you bought a house there at the last peak in 2004, you only made your money back after inflation some time last year,” he added.

Concern about house prices within the central bank is focused on bank lending standards rather than outright price movements. This puts the onus of cooling house prices on the shoulders of the banking regulator, not the central bank, with its one blunt tool of interest rates.

Only time will tell if the Australian Prudential Regulation Authority is successful in pulling back some of the excess lending to property speculators. Property investors account for close to half of all new mortgages.

APRA has indicated it is ready to deal harshly with banks not wanting to clean up their lending standards. All eyes are on it.

Boyton makes the point that the Sydney house price issue is a discreet problem for the nation, best suited to a microeconomic policy response, and it shouldn’t stand in the way of an interest rate cut that will benefit the broader economy. Monetary policy must be conducted with the entire economy in mind, he said. So, having realised the house price issue is largely centralised in Sydney, the fog on the economic outlook in Australia can lift a little. Unfortunately, that new clarity brings little cheer.

The economy is being lashed by collapsing commodity prices, the Australian dollar remains elevated, confidence is down and the RBA appears more likely to lower growth forecasts than raise them. On current forecasts, relief for the unemployed is some way off. The next revisions will be published on May 8.

The economy grew by 2.5 per cent in calendar 2014, not enough to reverse a nagging rise in unemployment, which is at its highest level in more than a decade.

Recent RBA missives have shown a clear bias to cut interest rates further and, having cut in February but paused in March, arguments not to wait are compelling. The RBA can proceed with confidence tomorrow, and not fear it is achieving little more than fanning a national property price surge. With inflation grounded, the RBA has scope to cut rates.

Financial markets have priced in two or three more cuts this year. That’s not out of the question as the economy heads towards a so-called investment cliff: the end of investment in resources projects as major gasworks are completed.

As that cliff is reached over the next year, there is hope other parts of the economy will step up.

So far, that’s not happening.
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http://www.cnbc.com/id/102587100

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Aussie property’s bubbly days are numbered: Goldman
Leslie Shaffer | @LeslieShaffer1
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Brendon Thorne | Bloomberg | Getty Images
Australia's property prices have looked bubbly for a while, but the surge is likely to hit a wall soon amid a combination of few births, high mortality and sparse migration, Goldman Sachs said.

"We estimate Australia's population will likely be 260,000 smaller by the end of 2015, 410,000 smaller by the end of 2016 and 530,000 smaller by the end of 2017," Goldman said in a note Wednesday. "We change our estimate of demographic demand for housing from a 140,000 underlying deficit for established homes by the end of 2017 into a 75,000 underlying surplus."

Read More Foreigners add to Australia housing bubble fears
That's a sharp turnaround from a strong run-up. House prices down under appreciated 23 percent over the past two-and-a-half years and are forecast to increase by 8 percent this year, driven in part by Chinese buyers seeking investment properties, HSBC estimated in February.

Demographic shift

While the country's population growth over the past decade had been among the most rapid in developed markets, that's changing, Goldman said.

Slowing income growth and women delaying having children have caused the birth rate to fall 3 percent on-year currently after a spike from 2005-2008, Goldman noted.

Additionally, Australia is getting "older, fatter and forgetful," it said.

The population aged above 65 years is expected to top 20 percent by 2025 and dementia and Alzheimer's disease will "easily" become Australians' leading cause over death over the next decade, it said.

"The rate of growth of deaths will easily double its historical average over the coming decade as the sheer number of individuals moving into age brackets with higher mortality rates swamps any further extension to average years lived," Goldman said. It added that Australian Bureau of Statistics life expectancy forecasts may not be taking into account that Australians are more overweight and obese than the G-7 average, even if Japan is excluded.

Read More Is tourism Australia's next best thing?
Two-thirds of Australia's population growth since 2008 has come from net migration, Goldman noted, but it asked, "Would you move to a country where you can't get a job?" With Australia's housing and living expenses high and employment opportunities low, Goldman expects potential migrants to look elsewhere.

Messy outlook

Goldman isn't alone in expecting a shift in Australian property.

"In the short term, low interest rates point to further gains in home prices," Shane Oliver, head of investment strategy at AMP Capital, said in a note last week. He expects home-price rises will average around 5 percent over the next 12 months, with Sydney and Melbourne likely a bit stronger, while Perth and Darwin areas are likely to see declines amid a mining bust.

The residential property outlook for the next 5-10 years though is messy," Oliver said. "Housing is expensive on all metrics and offers very low rental yields," making other assets a better value for investors.

--Nyshka Chandran contributed to this article.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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