"Whether it is at a family BBQ, a pub catch up with friends or a chat with new acquaintances, nothing gets a conversation going in Sydney and in NSW like property prices. The conversation inevitably meanders towards the heat in the market, the ever increasing prices and the subsequent question of ‘how can anyone afford this’?"
- Member for Macquarie Fields, Anoulack Chanthivong
Whether it is at a family BBQ, a pub catch up with friends or a chat with new acquaintances, nothing gets a conversation going in Sydney and in NSW like property prices. The conversation inevitably meanders towards the heat in the market, the ever increasing prices and the subsequent question of ‘how can anyone afford this’?
Sound familiar? No doubt many of us have been involved in repeated conversations on this topic.
For those of us in the policy or legislative arena, we should be continually asking ourselves the following questions;
1. Is the market working at its most efficient?
2. Can transaction costs
be reduced for consumers?
3. What regulatory changes
can result in greater efficiency and lower transaction cost?
The NSW residential property market in many respects operates under the ‘caveat emptor’ principle of ‘let the buyer beware’. The onus is on the buyer to take all necessary precautions prior to purchasing a property. Indeed, it seems all other Australian States and Territories operate in this manner, with the exception of the ACT.
On top of the high price of housing, it is also prudent for would-be buyers to obtain building, compliance and pest inspection reports. These reports ensure that the home of their dreams does not end up becoming a personal nightmare episode of “Renovation Rescue” after shaking hands and exchanging contracts.
The total cost of these property reports can amount to $1,000 or more, particularly in metropolitan Sydney. This may equate to a small percentage of the total value of the property and other related transactions. However, consider the situation where potential home buyers have to pay this amount over and over again as they miss out on their third, fourth and fifth attempt at securing a home.
Continually missing out not only dents the buyer’s bank balance as a result of paying for now useless property reports, but also drowns their confidence in wanting to enter the residential property market.
Surely, there must be a better way where this part of the residential property transaction can be lowered and the market efficiency and competition is increased. A viable alternative can be found 300kms south of Sydney in the ACT, where the principle of who provides residential property reports is turned upside down.
In the ACT, under the Civil Law (Sale of Residential Property) Act 2003, the onus is on the property seller to provide building and compliance report(s) to would-be home buyers.
To reduce the incentive for the seller to provide inadequate property reports, part of the Act gives the seller the right to reimbursement for the cost of obtaining these reports.
As an added protection to the potential property buyer, the Act makes provision for compensation for a property buyer in the event of any misleading or false reports produced.
Under this arrangement, a property buyer only has to pay once for report(s) that leads to a purchase thereby saving them the ongoing cost for property reports that ended up being redundant.
For the vendor, they have a right to be reimbursed for their initial expense once their property is sold but, more importantly, the lower cost barrier to entry can lead to more potential buyers coming to inspect and bid for their property. This increases competition for their property and can result in a shorter sale period.
This form of market arrangement can also lead to increased competition amongst the producers of property reports as they now have to compete with a smaller number of buyers. In order to win business, property report producers will have to bid and market themselves on producing more informative property report(s) for the best (or lowest) price.
In making the case for change, we should articulate why regulatory change is needed and how it can benefit the community we represent. Better regulation in the NSW residential property market can lead to lower property transaction costs. This outcome would surely be in the best interests of major stakeholders in NSW’s residential property market where 12,197 new residential properties have been listed – a 16 per cent increase in the past 12 months.
Ours is a political party with a tradition of challenging and changing the status quo. NSW Labor can continue this tradition and make the case for legislative and regulatory changes which make NSW’s residential property market much simpler, more efficient and more equitable for all.