Property cycles and the merits

I thought measuring debt was more accurate as private debt to gdp. Sorry if I'm derailing the topic.

 

Economy has to be real. For example, if you draw a circle around a city or country, for many years the money coming into the circle has to be significantly larger than that going out, we call it exporting larger than imports and hence we have surplus. Credit easing can cause people to buy and sell more products/services but circle wise we are not doing any better. We simply move money from left hip pocket to right hip pockets and vice versa. It is called ACTIVITY. We need activity but not too much/hot activity, hence credit squeezing kicks in.

 

There is no such thing as a cycle that just happens on its own. Perth had an up cycle due to boom in mining and now for the same reason it has a down cycle.

I suspect, unless if mining picks up in QLD, there will be great buying opportunities in Brisbane once interest rates go up. The economy is weak and people won't be able to hold onto properties in a weak economy with high interest rates. I think the time to buy in Brisbane is a few years

 

Some downturn is of cycle in nature, such as caused by oversupply. Other downturn is caused by structural change, ie, certain industry dies completely or totally replaced by overseas products. Oversupply downturn is good one. Structural change downturn is scary. Current WA, QLD property downturn is inline with commodity price slump(cyclical or not, seems to be a long one).

Hopefully any of the following combination will occur to save us.

Either commodity price goes up or becomes stable
Tourism goes up or
Agriculture thing goes up( formula baby powder shortage may provide a hint to the big pic here.)

 

Euro, your assertions in this thread make a lot of sense. For example, I have friends who have been investing using very high LVRs who, for the most part, can no longer continue that way. This equals less demand and necessarily lower growth (to the extent that high LVR borrowers make up the market I suppose). However, there have been periods in history prior to deregulation and the rise of double income households where prices in some areas have boomed dramatically. I can only ascribe this to social, population, employment factors etc. Is this not equally likely going forward?

 

The other point raised in previous posts is that most investors only buy one property .

The very small group who buy multiple properties , while common on this forum , only make up a small , though well informed segment of the investor pool.

Cliff

 

Adult population is expected to decline with baby boomers aging and dying.

 

AMP are back in the game at 90% + LMI ... all bets are off now.... the money will start flowing again

 

How are amp with their serviceability calculators ?

 

I was of course being a smart alec..... They used to be quite good - one of the best . 100% rental accepted. "Actuals" accepted. etc . They are now just like everyone else... ie much more conservative . And rolling over from I/O to P &I will require reassessment


Minimum Monthly Surplus requirement
The methodology for calculating Minimum Monthly Surplus changed from the "Household Expenditure Measure" (HEM) aggregate to utilising the higher of the HEM aggregate and HEM by income bands (where living expense calculations are directly linked to household income). see below - This is the real "sleeper" that isnt being talked about much . But many banks have adopted this and when measured in conjunction with 1. the higher assessment rates and 2. I/O repayment assessment changes, this trio of changes are real capacity killers

Assessment repayment for Interest Only loans
For assessment purposes, the factored repayments for Interest Only loans is calculated over the remaining Principal & Interest (P&I) term of the loan.

Interest type variations
To maintain consistency with the change to the Interest Only loan assessments any switches from a Principal & Interest term loan to an Interest Only term loan or Line of Credit or any extensions of Interest Only periods now require a serviceability assessment and must be supported by updated income verification documents.

Income
Certain income types are discounted as part of loan serviceability. Overtime, commission and investment income (including dividends) are discounted by 20% and bonuses by 50%.