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Apartment Glut coming...

Discussion in 'General Property Chat' started by euro73, 14th May, 2016.

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  1. euro73

    euro73 Well-Known Member Business Member

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    We've never really had a really really serious property collapse in Australia.... nor the associated banking crisis that such a collapse may bring on, but I wonder whether Australia has a tsunami forming....especially if multiple lenders stay away from lending to non residents who have purchased a large percentage of the apartments coming through the pipeline in the next 1-2 years?

    Im not posting this because I believe this will happen. We dont even know how many non residents are relying on borrowing to funds these purchases, but there are other considerations as well... what about the resident/local buyers who may not be able to settle either, because their borrowing capacity is far less today than it was when they purchased... they could be a much bigger risk in this debate, than non residents... and then there's the valuers, who will be seek to protect their backsides and will quite likely ( in my view at least) start whacking the valuations either way...just so they are protecting their own interests.....

    Of course, all of these things are yet to play out, but they are all quite real possibilities... and as more and more lenders tighten lending for locals and non residents, all we need is for sentiment to turn south, and these things could move from being possibilities to strong probabilities...

    Then , what happens to banks ratings? If they fall, cost of funds rise.... securitisation/refinancing of mortgage bonds gets tougher...LVR's may be forced lower still... it becomes self perpetuating..

    What everyone needs to realise is that our entire range of mortgage products , the cost of mortgages , the cost of LMI, the LVR's we are able to get... all of these things depend on our banks maintaining really good ratings on their mortgage bonds, and that means low arrears and low delinquencies. So if this got ugly, the consequences are not ring fenced to a few hundred thousand apartments.... no siree......

    My personal view is that this is probably strategic and political... ie do this now, during the election campaign in order to be seen to be good corporate citizens, weeding out those dodgy foreign borrowers and fraudulent brokers... appeal to the xenophobic Australian core, and then when Malcolm gets back in - IF he gets back in... the banking royal commission will go away and they will open up for business again... just in time for the first tranches of apartments to start settling...

    But if it runs deeper than that... could be a really big problem...

    Boom to bust: how many is too many apartments for our big cities?
     
    Last edited: 14th May, 2016
  2. Xiao Hui

    Xiao Hui Well-Known Member

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    I agree.

    With the recent announcement by the big banks that they will stop lending to foreign people, apartment sales will surely take a hit. Bear in mind that most apartments are bought by these foreigners as locals prefer house with land.

    Already my solicitor told me many buyers now are facing problems settling their completed apartments recently due to the banks' actions. This situation is expected to persist. And with numerous apartments still waiting to be completed, I think we will see more and more empty apartments.... Even for people with the money, they will be fearful of buying. It's a vicious cycle. And soon, we could see a drop in prices if this glut increases ...
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yep, I agree too.

    Thousands of non residents will not be able to settle on their off the plan purchase as it is virtually impossible for them to find a lender now. Lots of the big Chinese brokers (some in the MPA top 100) have been removed from lender panels and kicked out of aggregators because of fraud. So their clients are all in a panic and rushing around like mad - even the honest ones.

    This will have to have an effect on prices of apartments which in turn will have an effect on houses in the same areas.
     
  4. headsonbeds

    headsonbeds Well-Known Member

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    Those numbers at the end if the article are less scary than I was expecting. The financing issues still hold true however. Interesting times hopefully not the tsunami though.
     
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  5. Ed Barton

    Ed Barton Well-Known Member

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    I think Brisbane city, and inner city is in for some hurt. There seems to be a massive amount of apartments coming online now/soon.
     
  6. Angel

    Angel Well-Known Member

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    Maybe it is a ruse by the banks and govt. Say no to foreign lending to placate the angry mobs. Then point out the consequences of this action.

    Wait a year while the panic sets in and values drop then repeal their rule. Presto - The public wont be as opposed to foreign investment as it is now. The majority of the population owns their own homes and they wont sit on their hands when the value of their OWN homes start to fall.
     
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  7. JDP1

    JDP1 Well-Known Member

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    Perhaps..i dont think it will be as much as thr pain Melbourne inner city eg southbank and docklands will face.
    I also dont thibk the exposure bqnks have to foreign lending putely to buy an investment property is high. If it were, the bank stocks will all be in the toilet.
     
  8. propernewb

    propernewb Well-Known Member

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    I agree, i think it will be a question of when - not if. I think that if negative gearing were to be axed too, then we could see some large falls, even in Sydney.

    I think the next question should be - when are most of these investors expected to settle?
     
  9. LibGS

    LibGS Well-Known Member

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    I see this as a massive opportunity. Bring it on.
     
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  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    So far most people are considering this problem with only limited thought to the solutions. Every comentator I've seen has been speaking from a local perspective only.

    Australian banks are fast backing away from lending to foreign residents. That will have consiquences and there'll be a lot of people unable to settle and so on. Some the reasons the banks have backed off is due to regulatory and policital presure.

    There's also a lot of alternate options to many of these borrowers. If the bank isn't in Australia, they aren't subject to the same regulations or politics. There's nothing stopping a foreign investor from borrowing money in Singapore, Tokyo, Hong Kong, etc.

    The restrictions are different. Many of these people are investing in Australia because they want to get money out of a Communist country and borrowing the money in that country dilutes that. LVR restrictions might be to 60%, many of these borrowers can put up a 40% deposit. Currency fluctuations make the whole transaction more risky but the weak AUD makes it a reasonable long term bet. Overseas rates might be higher than domestic, but when you've got deep pockets rates aren't as important as some people think.

    It's amazing how quickly a vacuum can be filled. A couple of local lenders might decide that they can capitalise on the lack of alternatives (I bet the big banks are already looking at this). Foreign banks will also rise to the opportunity. The supply of money hasn't been turned off, it's just that the nozzel has been tightened. The suppliers will be looking for ways to introduce other ways to distribute their product.

    There's been speculation that the likes of Google or Apple will start offering home loans. They've got a lot of cash. Everyone's been suggesting that this might shake up local lending but why bother when there's a huge market that's unregulated outside of Australia?

    Does anyone really doubt that the likes of Metricon and other big developers will take this lying down? The current dometic lending environment is a direct threat to a billion dollar industry. They will be looking for solutions and there are solutions out there.

    There will certainly be a high number of defaults. A lot of people won't be getting funding and there will be opportunities, but this isn't the end of foreign investing in Australia, it's just a shift in how it's done.
     
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  11. propernewb

    propernewb Well-Known Member

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    @Peter_Tersteeg, pigs will fly before Apple and Google come to save developers from defaulting buyers.

    The most likely thing that will happen is a bailout of some sort, as has been done for many Western businesses that have grown too big to fail. Either comes in the form of a home buying grant or increased tax deductions/credits for those developers.
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Apple or Google is mostly my imagination. There are companies out there with a lot of cash that might take the opportunity to charge exhorbitant rates to desparate purchasers. Risk can be mitigated through lower LVRs. Local regulation can be avoided by lending the money outside of Australia.

    Not suggesting that there won't be a crash or some sort, but history has repeated shown us that when things get bad, someone comes up with a way to benefit from it. Several posts in this thread have suggested it's an opportunity for buyers, but it's also an opportunity for lenders.
     
    Last edited: 14th May, 2016
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  13. big max

    big max Well-Known Member

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    When it comes to apartments by far the best bet is to buy freehold land or freestanding houses in prime area where apartments are being developed. Apartments will be filled regardless of price. Market forces dictate that. If you hold freehold land your land will as a percentage of total population become rarer and rarer. And the laws of supply and demand in turn dictate the value of such land will go higher and higher.

    That why for example when preparing to benefit from all the coming growth on the Gold Coast I only buy land (or older low rise apartments).
     
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  14. sash

    sash Well-Known Member

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    Sydney and Melbourne markets are the ones to watch...it should get very interesting.....seeing quite few which developers can't move on post completion.

    Me thinks they are apartments where people have walked away...losing the deposits.

    Lot of idiots out there listing their places for auction prior to an election.....hilarious. They should star in dumb and dumber...great if you are buyer. Will certainly be interesting if labor wins. ;)
     
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  15. RPI

    RPI Property Lawyer, Town Planner Business Member

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    Most of the international buyers we deal with in the off the plan market pay cash. Their primary motivation seems to be to get their cash into something real in our country, even if the market crashed they still own something real. It is often not what it will be worth when they settle, what will it be worth when they give it to their children. If it wasn't for the FIRB rules a lot would be buying established houses too, although the apartment means they can be locked up empty without having to worry about external maintenance.
     
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  16. Azazel

    Azazel Well-Known Member

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    Yeah, percentage wise, seems a lot more than Sydney and Melbourne.
    At least Sydney has some population growth to soak up some of the glut over time.
     
  17. JDP1

    JDP1 Well-Known Member

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    agreed sydney has the high pop growth and also a shortage in most inner areas....but brisbane has a huge price ( and price to salary ratio) advantage over the corresponding sydney property.
    Will be interesting to see how this unfolds.
     
  18. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Lucky that NRAS doesnt do apartments then!
     
  19. hammer

    hammer Well-Known Member

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    Regardless of the finance aspects....would it be fair to say that we have simply built too many?

    The numbers of new units coming online are staggering. Even if finance wasn't an issue...wouldnt supply and demand kick in and drop the price anyways?
     
  20. big max

    big max Well-Known Member

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    Yes probably. But bear in mind if we open up oz to more immigrants from asia the apartments could also easily be filled.
     
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