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and so it begins...

Discussion in 'General Property Chat' started by euro73, 11th Aug, 2016.

  1. euro73

    euro73 Well-Known Member Business Member

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  2. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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  3. Bran

    Bran Well-Known Member

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    What?
     
  4. House

    House Well-Known Member Premium Member

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    The inevitable foreign buyers unable to pay for OTP saga

    Google 'robert gottislen chinese buyers' and use cache workaround ;)

    225 N Syd apartments settled this week with 0 defaults. Another 200+ in a Melb CBD development settled with below average default of 1.5%
     
    Last edited: 11th Aug, 2016
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This will lead to further drops in values and further lending restrictions for foreign buyers.

    Helps take money from foreign investors.
     
  6. Angel

    Angel Well-Known Member

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    O goody. We offend the Chinese. War anybody?
     
  7. paulF

    paulF Well-Known Member

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    If you mean economic war, then yes. It's already been on worldwide for a while now(TPP,currency wars...)
     
  8. bob shovel

    bob shovel Well-Known Member

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    I'm sick of there being no cookies!
     
  9. House

    House Well-Known Member Premium Member

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    image.jpeg
     
  10. euro73

    euro73 Well-Known Member Business Member

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    bobbyj likes this.
  11. Sonamic

    Sonamic Well-Known Member

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    Shhhhhh don't talk about war. Americans will be here in a flash! Cause they've got our backs right if China gets nasty . . . . .
     
  12. hammer

    hammer Well-Known Member

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  13. euro73

    euro73 Well-Known Member Business Member

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    Its going to be up to the banks, in the end. If they start lending to Chinese again, a good portion of the problem goes away. If they don't, lots of Chinese buyers will walk , and combined with domestic investors who may not be able to settle due to the servicing goalposts moving... big problem. If the apartments could easily be resold it wouldn't be a problem, but apartment sales have ground to a standstill in Brisbane, Sydney, and Melbourne - particularly high density, inner city stock. Problem then becomes valuers. ...meaning that even if buyers return, valuers will seek massive backside protection and so I fully expect them to savage new apartment stock in 2017, as it comes due to settle. I suspect some developers may go to the wall. I'm aware of several very big developers already shelving large projects in Brisbane and Melbourne. They have 100% pre sales and 250% debt coverage and still wont proceed because they consider settlement risk too great.

    But a far bigger concern than developers, is the banks. The banks may have to write off some quite hefty losses in a worst case scenario. I'm not talking millions...I'm talking hundreds of millions best case, and more likely billions! Possibly tens of billions!!! if that sounds hysterical or fanciful, consider this. There are @300,000 apartments either under construction or about to commence construction, in Australia. If we work on a build cost of 300K per box, that's 90 Billion of lending , and you can be certain the majors and 2nd tiers would have exposure to a large majority of that... so now reconsider whether my earlier comments are hysterical, when viewed through the prism of worst case possibilities.... doesnt take a genius to see how ugly it could get.

    I said many months ago, this has all the potential in the world to be the cause of an Australian credit crisis. That wasnt hyperbole. Imagine the following "perfect storm" .... Huge settlement failure because so many apartments have been purchased by Chinese who cant get money, followed by valuations collapsing, followed by huge bank write offs potentially in the tens of billions , followed by ratings agencies downgrading banks, potentially enough that their share prices plunge and their dividends are slashed, and leading to dramatically higher costs of funds and much lower LVR's all around as wholesale /securitisation markets potentially stop buying Australian mortgage bonds , , and that leading to a broader non apartment property collapse as banks cant offer mortgages to 50% of applicants because they cant get offshore funding. Then consider how many super funds and SMSF's rely on banks dividends to prop up their income because every other cash asset is offering sub 3% , and you can see a case for an apartment market collapse leading to a financial catastrophe for super funds and retirees because their only high yielding income stocks in an ultra low rate environment would be savaged.... yep, it could get ugly ugly ugly...

    Because of that, I cant see how the banks can afford not to start offering finance to Chinese again, soon.... it seems to me they are simply guaranteeing they create huge, huge problems for themselves if they dont.
     
    Last edited: 12th Aug, 2016
  14. Angel

    Angel Well-Known Member

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    I hope so Euro. One part of me agrees about Apra tightening lending, even if it has caused me some grief personally. I sometimes wonder, though, if part of the pressure to make bank lending more difficult for foreign buyers is more out of pandering to the hollering masses in Australia regardless of whether it is in the nation's best interests.
     
  15. euro73

    euro73 Well-Known Member Business Member

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    Its window dressing to stave off a royal commission... to look like "responsible" citizens who are attempting to tighten their systems and weed out fraud. I fully expect the banks to start lending to Chinese again before the end of the year
     
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  16. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    If what your sayin rolls out @euro73 it probably wont bode well politically for Australia if a lot of Chinese get stung.
     
  17. Dean Collins

    Dean Collins Well-Known Member

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    I try and explain to friends of mine in Australia if the **** really hits the fan USA will not be there. Basically unless someone discovers oil in Darby WA all we will get is a nice....sorry but home front first etc.

    This said the chance of FUBAR in Australia is far far lower than something happening in ME, EE, USA mainland etc.

    I try and explain to friends that by far the biggest risk my wife and I are carrying at the moment is the $1m+ equity in my PPOR in Brooklyn NY and that the chance of something going titsup in NYC that makes this place unlivable (and wiping out all equity) is pretty calculable......which is something that makes tenants walking out of your IP in Sydney owing 4+ weeks of rent.....pretty sweet.

    So the Chinese wont buy and we'll get 0% capital growth over the next 2-4 years......who cares, unless you bought in the last 12 months OR you have to sell in the next 12 months "NoCookies" isn't really going to impact you one way or the other over the next 20+ years until retirement, its just a blip on the radar like Y2k and Pets.com etc
     
  18. Sonamic

    Sonamic Well-Known Member

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    My point exactly.

    @euro73
    Very informative post. Very succinct, and one of the best I've read in a while.
     
  19. euro73

    euro73 Well-Known Member Business Member

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    If nothing else, I cant see how the banks would just sit by and allow their commercial divisions to take such massive losses. I really dont think they can afford to leave chinese borrowers excluded from finance
     
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  20. euro73

    euro73 Well-Known Member Business Member

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    You're missing the point. The Chinese have already bought - in droves. The article relates to them being unable to settle, not unable to purchase. What happens to the value of apartments, and the banks ability to get their money back, when 40,50,60% of apartments dont settle?
     
    Terry_w likes this.