AMP sees 20pc fall in Sydney, Melbourne

If it's a personal question I have stated I would, I assume it's a general question to everyone.

 

Just curious, Investors who have or are close to hitting serviceability wall now, will they be able to buy more come 2020 and lets say 20% fall, if credit environment remains same?

 

It depends. I would guess that some won't. Looking at Australia, only around 20%? of Australians invest in property. 80%? of those only have one IP. Realistically then, how many investors are actually maxed out?

That and if they save for 2 or 3 years, will they still be maxed out?

 

Are you finding many investors are currebtly maxed out with no options?

Also, say I am maxed out now but save several hundred thousand dollars between now and 2020. At time time I try to buy a rental property at 80% LVR but I don't meet servicing. Could it be possible to borrow at a 50% LVR? Because if so, that could be an option for some investors.

I would be able to save enough to buy at a 50% LVR by 2020 and an even lower LVR by 2021.

 

I thought they were property forecasting gurus describing the view this guy is seeing.

 

Pretty negative sentiment for a guy with a username of never give up.

 

lol. This deserves a double like.

 

I depends....Will they fix the capital gains tax discount for expats?

Currently we pay 38% minimum capital gains minimum (up to 45%).....then NO.

If they reintroduce the 50% LTCG discount for Australian citizens who live/work overseas then Yes.

But until they do this our investment funds every month are being directed elsewhere....

 

Lol...cut your coat according to your cloth mentality here but never give up all the way bcoz try try again wins

 

We need to consider the interest rate as well. By 2020~2023, the official interest might be in 4% range which means residential investment mortgage interest rate will be at around 6~7%.

 

Sydney has a DTI ratio of 10.4 x income today according to what APRA has told us. Melbourne has a DTI ratio of 9.5 x income. Whether those figures are absolutely accurate or just in the ballpark, they are nvertheless @ 50% higher than what APRA has said they want, moving forward ie 6-7 x income.

So if that's a good guide of the framework that we can expect most lenders to work within most of the time to determine borrowing power - you just have to work backwards from there and try to determine how long it's going to take to close that 50% differential/gap?

We know that if every borrower in Sydney switched to P&I today over 30 years, they will only have paid off 21% of their debt after 120 months ( 10 years) They will have made it further along if they have made extra repayments, but that's not going to be the case for most investors because they mostly invest in low or vanilla yielding purchases in pursuit of growth rather than investing in assets that can produce surpluses to aid with accelerated debt reduction. Sure, some have smartened up to the value of yield and debt reduction, but many have not, so how are they going to make extra repayments to improve a 10 year/21% outcome?

So if P&I minimum repayments only reduces debt by 21% over 10 years, and the debt to income ratio has a 50% differential , the other 29% will need to come from wage inflation or rental inflation. Price corrections don't help those already carrying debt. Their debt doesn't come off just because the value of their properties come off. Price corrections may aid the next generation as they dont need to take on as much debt to purchase an asset that has become devalued, but it will do nothing to aid existing borrowers borrowing power. And the next generation will still face servicing ceilings and will still have to attack debt to get past them. The situation is the same for everyone moving forward.

The way this credit environment works, once borrowing capacity ceilings are reached, even if everyone switches to P&I and if we see 2% - 3% wage growth and rental growth for several years in a row, and if we have no rate rises, it will still take @10 years to close that gap and until we see the median Sydney DTI ratio fall to 6 or 7 x median income. But even then , that really only gets borrowers back to a neutral position . It would allow for refinancing, for example.... but it wouldn't necessarily allow for any additional borrowing, and even if it did it certainly wouldn't allow for enough to drive prices significantly higher .

The DTI ratio will actually need to get well below 6-7 x income in order for those borrowers to have enough surplus capacity to start driving prices higher . So using median DTI as the yardstick , it's difficult to see how that mathematical formula plays out in anything less than 10 years unless there is real surge in wages without a corresponding surge in inflation and a corresponding surge in interest rates...or a reversal ( or partial reversal) of the current credit regime. Could be looking at 12-15 years if we see modest wage inflation or rate rises.

It's been clear for several years now that things were going to go this way and it's clearer than ever today that things are going to keep going this way. It's why I have long been an advocate for cash flow and debt reduction. In this environment , unless you have deep enough pockets to buy for long term growth and can handle heavy P&I repayments with vanilla yields, or unless you can redevelop a site or subdivide a site and sell things off for a profit - all of which require borrowing capacity by the way.... dont be fooled into believing those sorts of things are gimme's and anyone with the appetite for that kind of thing can just do it - you are better off buying resi assets that can run themselves under P&I and just start paying them down.

#decadetodeleverage

#cashcowskilldebt

 

So for someone close to debt serviceability wall now (i.e already at 9.5xTotalDTI)
by 2025 we are looking at just normalisation of the borrowing capacity by 2025 without the ability to borrow further,

Does it mean this 7x totalDebt2Income cap will put quite a few investors out of the game for some years to come?


With the new normal in credit tightening, IO2PI rollover and supply surplus coming in next two three years, and in absence of quite a few existing investors due to TotalDTI cap How far do you see the price can fall in Syd/Melb by 2021?

 

Any idea whats the median/average total debt for portfolio investors say holding 3+ properties?

 

The bottom line is - broadly speaking there just isnt enough borrowing capacity available to Sydney borrowers to sustain current prices or drive them higher.

It's just going to be more of the same in all probability. low auction clearance rates. prices slowly coming off in most Sydney markets . most existing borrowers extremely limited in what they can do to access their equity. most new buyers limited in what they can borrow..

Head down . Bum up. Pay down debt .... one day this will pass, and those who are deleveraged and have retained their rental incomes, will be well placed to profit when that day comes. And if it never comes, they'll have their properties largely paid down and a handsome income stream.

People are making this far too complicated, when its really very simple.

With regard to Borrowing Power , the regulators have implemented policies that are quite deliberately designed to
1. reward those who amortise debt, and
2. punish those who do not.

With regard to Holding Power , the regulators have implemented policies that are quite deliberately designed to
1. reward those who amortise debt , and
2. punish those who do not

 

I don't know about this debt to income cap. I'm supposedly maxed out with a dti of between 3 and 4. In my dreams I could borrow between 6 and 7. I think other servicing limites kick in a long time before 6xdti is reached