and so it begins...

Yeah but APRA and ASIC didnt instruct lenders to stop lending to the Chinese. APRA instructed lenders to keep to 10% I/O speed limits, and without saying so directly , told them to write more P&I business. ASIC instructed lenders to apply more stringent "responsible lending" criteria, so out of that we have seen a variety of changes- assessment rates, LVR's and HEM's.... basically just stricter credit all around for I/O lending. In relation to Chinese borrowers, the banks could have simply said ...you have to pay P&I. Would have allowed them to keep lending to the Chinese without impacting their I/O speed limits. Easy peasy. But they didnt. Instead, the banks chose to ban Chinese lending on the premise that they had suddenly uncovered widespread mortgage fraud , all perpetuated by Chinese brokerage groups.

Well, the banks didnt just discover these issues of fraud. They knew about the Chinese mortgage fraud for years and years and years. It was the industries worst kept secret for years .... new mortgage groups coming into the market with zero experience, staffed by dozens of young back room staff barely able to speak english, and suddenly writing hundreds of millions a year out of their loan sausage factories... I mean, come on..... really? So they knew. But they didn't care. Why? Because the loans were ultra profitable, and ironically they suffered less delinquencies and arrears than they suffered on "clean" loans

The fact they have suddenly changed their tune and banned Chinese borrowers was no coincidence. It occurred pre -election, during a time where massive political pressure for a royal commission was happening. So this is not about APRA or ASIC. It's about being seen to be good corporate citizens....

But this really comes down to Westpac. They had 65% of the Chinese market. When they pulled out, the business flooded to other lenders and then they got scared of the fraud and closed off to the Chinese as well.

My mail is that many of the lenders are looking at new, much stricter policies and income verification processes and will be back, soon enough... if they are smart, they will offer only P&I lending.

 

How many of these Chinese buyers do you believe have the means to Settle in cash @euro73 ?

 

They cant get the money out of China it appears.... so its less than people had anticipated being able to settle with cash.

 

Its better to settle titled stock with 100 new lenders and risk 10%!foreclosure than not settle the titled stock and guarantee the developer going to the wall and taking the commercial loan with it.

 

Yeah....well......the good guys are gone with the election over with passing on of rates going back to behavior as expected, so they will possibly turn this around too, but we have seen silly things before.

 

2017 will tell the tale. But unless you purchased one of the Off The Plan apartments at risk...just move on. Head down. Bum up. Concentrate on debt reduction.

 

The poster boy of despair in the article is an English teacher in China. I can't imagine a teacher in China having the means to buy a $600k AUD place in Australia. In fact, I can't even imagine him having the means to pay his child's tuition. There's something dodgy going on. Either he has some black income, or the oz banks are dodgy.

 

Chinese buy with family members and wealth stored. Grandma/grandma/father/son all contribute savings/incomes to purchase, add dodgy lending practices but who really knows how much of this happens.

 

I have a large circle of property-buying Chinese relos/friends and although this is too small a sample for stats it has usually allowed me to pick up trends pretty early. Yes, the environment for them has got much tougher in the last 6 months, however to my knowledge none of them have missed a settlement yet.

A few months ago I did a post about someone struggling to get money out of China, but they were ultimately able to settle on time. Another one also found cash after their loan approval became problematic. So from my vantage point alarm bells are not ringing yet.

I'd say, most of them.

Oh yes they can. Illegal money transfer is what most people think of but a lot of the money gets out of China through legal trade, false invoicing. Consider this:
Why China Does Not Have a Trade Surplus

That’s just Hong Kong. Imagine what can be done if you’re exporting widgets from China and your cousin in Australia selling them on eBay. This type of capital outflow is almost impossible to control.

There’s a lot of dodgy stuff going on and I’ve written extensively about it on the old SS. Tolerance of fraud and corruption are absolutely rife but I’m not going to repeat myself. I’ve gone past the point of being angry about it.

However a teacher buying property in Australia isn't necessarily a sign of dodginess. The Chinese have very tight knit networks and it can work miracles. Likely it would have involved some contribution, personal loans or special favours from relos/friends, or they could have a business on the side. I know a guy who got a nil interest loan from someone in his native town because they went to primary school together!

And remember, in China people routinely save half of their earnings. They routinely buy, and own outright, property 20-30 times their income. Maybe that’s a sign of a bubble but that’s another story.

 

so lets see how this unfolds through 2017.... I dont think anyone really knows whats going to happen. The only thing that seems certain is that any "froth" from Chinese buyers is well and truly gone now...

 

I disagree. If we get enough migration both overseas and interstate we will be fine.

 

I listen to all this and think what a wonderful time to buy already built, but not settled, apartments.

Remember the price crash when Docklands (Melbourne) came on line in one hit - many couldn't settle due to the drop in value and units were being picked up for bargain basement prices ... few years of correction and those that could buy are doing very nicely thankyou

 

Exactly!
I have returned from a weekend away and read on. The outlook for someone with several properties around Brisbane is not so scary now

 

Apartment correction to cause Australia-wide recession: report warns

Interesting reading .......although my view is that the banks will take steps to stop the worst case scenario outlined in the article, from occurring, by reintroducing lending to non residents - Chinese mainly. If they don't, they are all but guaranteeing a huge percentage of high rise projects cant settle, which will leave many developers unable to repay the banks , and that ultimately means they ( the banks) will take a massive bath... so while the arguments contained within this article are reasonable, I think the banks will be alert to the issue and head it off, if for no other reason than self interest.

 

@euro73 I thought that I was a Doom and Gloomer, but I think that you might be outdoing me.

There's a video at The Australian (not paywalled) that covers much the same ground as what was said in the article you linked to.

The housing disaster we all see coming but don't want to talk about

I don't know what's going to happen, but I wouldn't want to be buying an apartment in central Melbourne right now.

 

Not at all. I actually said I don't expect this horror show/ apartment market perfect storm to play out as suggested in the articles above. As it stands right now, the banks policy settings are likely to cause unnecessarily high amounts of apartment settlements to fall over. For that reason, I have to assume, believe, hope they will adjust those policy settings - simply out of self interest.

Everyone else should be hoping so as well, because lets look at worst case....
if we were to see 40 or 50% of apartment settlements falling over , which is not unrealistic given the large percentage of OTP apartments that have been sold to Chinese buyers who need loans and cant get them, or Chinese cash buyers who cant easily get their cash out of China and now cant get a loan as a contingency...what happens?

Its possible/likely that many developers , including some pretty big ones, go to the wall and end up being unable to repay their banks. Then banks would have to step in and sell off unsettled properties in an effort to recover some or most of their money - all in a real estate market in which sentiment and valuer support would have turned extremely negative, overnight.

And then the real trouble begins- because if that sort of thing started to happen, it's not too difficult to see how that could well lead to big losses for the banks, which would lead to big drops in the banks share prices and possibly even their credit ratings , which could in turn lead to cost of funds increasing , domestic lending tightening , LVR's reducing etc... in other words, Australia's own little credit crunch - potentially.

And if that snowball starts, there's no way to stop the contagion spreading to the entire property market, because the entire real estate market is ultimately underpinned by credit.

And then the broader economy gets a hit - a very serious one at that. Bank shares plunge. Dividends get slashed. Retirees and super funds take a huge hit because they are all into the Big 4 in a big big way.... so we have real problem. Their only other decent yielding options are miners - and arent BHP going gangbusters with dividends after their 8 billion loss last month ? or term deposits at 2%, or savings accounts at 2%.... then construction workers and tradies have no work as the construction industry grinds to a halt or a near halt. Their suppliers have no work. real estate agents, conveyancers.... state Govt stamp duty revenues plunge ...... you can see how it just gets really ugly, really fast if the worst case scenario is allowed to unfold. Because the whole system. The whole game. The whole ball of wax - it's all underpinned by cheap and readily available credit .

So for all of these reasons, I dont see how the banks will not reintroduce lending to the Chinese - even if its solely for the purpose of getting settlements across the line throughout 2017 and 2018 in an effort to avoid any of the above happening. Any other decision would appear to be almost guaranteeing big hits to their bottom lines, and serious risk to the broader property market, share market and therefore the entire economy.

 

this is going to sound bad, but I wouldnt mind buying a ppor in one of these apartment complex as tlong as they are nt shoe boxes,

do you think buying one just after settlment from a distressed seller to get a screaming bargain?

I was looking at dockalnds a few years ago and noticed that an apartment that was advertised for 1.25m eventually sold for high 800s!

 

I'm interested as to we've the bottom will be. We have had at least one year or more of concerns about oversupply in the last couple of weeks the media coverage has got more and more extreme about the oversupply this would be affecting price is right now but I am wondering at what point they get their lowest we probably need a few more sales to start happening I reckon people at this stage would still be holding on in hope.
I offered 220 on a one bedder in Hamilton. Someone's brother at work is selling. Asking 320. If you consider 10 more years of no growth on shoeboxes and a 15% price drop my offer wasn't so ridiculous.

 

If the property has settled, the buyer isn't likely to be stressed, or willing to sell at a loss. So in all likelihood the only distressed sellers will be a bank who has repossessed a development , or developers trying to re-sell stock that hasn't settled. In those circumstances some heavy discounting may happen, yes. But all of this will only really play out if the banks allow it to .... they are still in a position to determine how many settlements crash - and that's why I still think simple commercial greed will dictate that the perfect storm being talked about in the press will largely be avoided...

 

Great point!

I guess maybe word of mouth of a rich chinese investor being unable to settle shortly might be a chance for a huge discount (30%)