Apartment Glut coming...

I bet you $1USD that it doesn't.

 

Fitch ratings is concerned about:

• Excessive reliance of apartments on foreign buying.
• Increased settlement risk
  
• The effect the apartments will have on banks.
• Construction being a bigger risk to economy than mining as employment in construction is 4 times than mining.

Not even the banks are safe from the property oversupply

Interesting times ahead, may be a downgrade in banks rating as well.

 

I would suggest we ease up on foreign investment restrictions and allow more (carefully selected) immigration.

 

Why ?

 

This is how it is in the US.- im no expert on foreign policy however...i would think you dont want to take in just anyone ( excl refugees/humanitarian etc). ..however actually want to make it very easy for those who contribute to society in any way , especially high skilled and value people. This is just economic and competitiveness based.

 

Ok, granted...my point is... we have never had 300,000 apartments coming online within 24 months... this is a whole different level of "glut"

 

I'd hazard to guess because he owns property and wants the value to continue to appreciate...

 

There are no restrictions on foreigners buying new dwellings, thus the explosion in Melbourne high-rises targetted at Asian buyers. Pre-GFC, developers could only sell 50% to overseas buyers and we'd be much better off quality-wise if this rule still applied.

 

Yes and also because in general I would like to see economic growth which also comes with population increases.

 

Read this:

The golden age of Australia’s Chinese property boom may well be coming to an end.

 

I have seen a similar situation in the past (although probably not to this scale). Funding for the high rise apartments tend to be from our local banks, from their institutional banking. Guess what happened if the presales could not settle? The commercial loans could not be repaid. They may then decide to honour their previous preapprovals. There will be some politics involved within the banks ie between their home loan and institutional departments. Seen this before where a big 4 bank funded a tower in Gold Coast, valuations came in lower because of the market downturn, their home loan department was asked to write 90% LVR without LMI. Because if they did not do that, then the loss to the bank would be much higher

 

and the institutional side packages heaps of loans a together, re-assures this in the wholesale sector, and creates new managed funds or flog them to their existing managed funds as it is now a bond equivalent with a-level rating. And Australia or other countries are not short of people buying managed funds from the big 4 and co. Still good looking days for the banks because at the end of the day neither the retail or institutional side of the bank actually owns the loans, but individuals and retirement funds. So who cares if the value of the asset securing the loan drops? Not them. It just makes their 'magic' accounting a bit harder to show good return on equity for one and fund performance for the second one.

 

Mainland chinese - we still got the other SE asians haha.

In btw i secured this high growth zone block in melbourne - thinking now apartments or townhouses. With the scrunity of apartments - seems like a negative

 

I wonder if the banks do look at the loans like that. Commbank is on the hook for a certain development and then a borrower comes to buy in that development so they push the loan through with less scrutiny?

The banks are badly exposed here but I'm not sure what they'll do if the apartment prices keep dropping - even if they keep giving out loans, the developer may still go under because of the price drop. Perhaps you're right and at that point it's more about the degree of loss being managed.

 

Watch The Big Short, that's exactly what banks did and continue to do, they just change the names of how they do it every few years!

It's funny that a contrarian investor right now really should be looking at apartments as a good buy given the amount of negativity around the sector!

 

Still waiting to see it! I've read the book, which was terrifying and amazing all at the same time.

Would be interesting to see someone conduct an experiment - if ANZ is funding the developer, do they give loans easier than another bank?

Seems like the developers have kinda got the banks in a chokehold here a bit too. Very much that, I owe you a hundred dollars, I have a problem, I owe you a million dollars, you have a problem.

 

That is what some of the developer's are proposing. The loan remains as the development loan on the banks books, which is then again lent on as vendor finance:

• The foreign buyer's then do not have to have to go through the hoops of serviceability.
• Banks do not make new loans to foreigners.
• Vendor/developer makes his mark up on the loan.

Give it another 6-12 months...Fire-sales

 

I've noticed a few listings for the unfinished Eve development at 1A McDonald St Erskineville recently.

With words like "resale, motivated vendor, expected settlements May/June"

 

The government has started doing it. See below.


"Australia Immigration has reduced the pass mark from 65 to 60 points . There are many skills which are in demand as shown in Skill Occupation List/SOL Schedule 2 as attached.

Current Processing time is much faster, approx 8-12 months ."

 

I just bought 1 six months back and I'm hoping to get another as my PPOR. Bought a 2/1/1 in the city in a nice small building for the same price as new 1/1/1's with much smaller floor plans in far more crowded buildings are selling for. Hopefully going to get a 2/2/1 for less than it originally sold for, 4-ish years ago, again in a nice small building again below what new stock is selling at.

Sure, the market value ~MIGHT~ dip in the next 24-26 months, but I'm buying on a 180+ month timeframe, I'm buying what I consider to be good quality product & versus the new stuff, at prices I'm really happy at with 6%+ gross yields.