Sydney's housing bubble deflates as loans revisit GFC declines

That's not too different to before. Is that recent? Any links?

 

Ah, I'd have to go hunting...

 

True, poor Gold Coast did it hard for several years. The tourism has only just started to return however. As the rest of the world shakes off the GFC, the Gold Coast can look forward to continued recovery for a while.

 

Nah don't worry - I can look myself if I really want to make a point.

 

June 2017 75% variable, 25% fixed approx:
Variable rate demand back on the rise

 

As you see, I'm not very patient when it comes to hunting facts to make a point

 

No worries.

 

You’re really stretching.

 

Not sure if it has already been discussed or old news rehashed but just come across this article about tighter rules regarding highly geared borrowers.

Highly geared borrowers tipped to face extra scrutiny.



"Property investors seeking to borrow many times their income are tipped to come under increased scrutiny, as banks respond to regulatory pressure to restrict higher-risk mortgage lending.
Following a direction from the Australian Prudential and Regulation Authority (APRA) in April, banks are grappling with how to set what the regulator calls "internal risk appetite limits" on new lending to customers borrowing more than six times their income."

 

Does this mean the death of professional property investors?
Left out in the cold or feels like the legs have been chopped underneath them.
They must be talking about the investors with more than 4 x IPs or more.

 

What about govt revenues? Stamp duty contributes to a significant percentage of revenue

 

Are you suggesting APRA needs to consider NSW Revenues coffers ( or the coffers of any other state treasury) when deciding whether to de-risk a banking sector with 1.6 trillion of wholesale and securitised debt propping it up?

 

No. It means the death of the speculative investment model that stipulates to buy for growth, ignore yield and ignore debt reduction. Holding costs will blow this model out of the water now. It means the model needs to evolve towards one where holding costs can be managed - meaning all INV properties can be held under P&I conditions... so it ultimately means that to build ( and hold) and larger portfolio - at least some of the portfolio will need to be CF+ and some debt reduction will need to form part of the strategy.

No. They are talking about investors with high DIR's. Depending on income levels and purchase prices and yields , that can mean different things for different investors, but assuming median incomes, median yields etc... its conceivable that many investors on median incomes, still carrying a modest ( say 300K) PPOR mortgage, will reach these levels after just 1 , possibly 2, modest ( say 300-400K) INV purchases that yield 4%. Quite conceivable. Almost assured.

And its conceivable it will take them 10 + years before they can borrow again... because they will need to wait for their minimum monthly P&I repayments to slowly chip away at their debt , and they will need to wait while modest wage and rental inflation occurs as well. And to be honest, 10 years is probably being generous... at current debt levels and at current levels of rental and wage inflation, we could well be looking at 15 years +

But that's not even really the problem..... the real problem is how they hold on for 10 + years when their INV loan repayments jump by 50%+ in 5 years time, and they havent paid down any debt and they have 4% yields coming in.

if you are starting out today , forget building large dollar value multi property portfolio's for growth, and holding them through "cycles" long enough to cash in. And even if I'm wrong and you get strong growth , forget harvesting that growth over and over and repeating. That model requires borrowing power most investors no longer have, and holding power most investors no longer have

Concentrate instead on building smaller, CF+ portfolios that allow you to pay down debt and hold for the longer term under P&I conditions, so that you can eventually harvest the equity ( less debt = more borrowing power ) , and worst case, hold the asset debt free and retain the income stream.

 

I am suggesting nsw govt has a incentive to stabilise the property market.

APRA is but one player in the game....

If govt has not incentives and obtain no benefits from the property market. It probably won’t be the way it is today.....

Zoning is a good example......

 

The state Govt can zone for medium density and high density in every Sydney suburb, but its impact in Sydney will be limited compared to what it would be in an expansionary credit environment. If people cant borrow more money, they cant pay higher prices and they cant develop resi blocks - thats Sydney in a nutshell. And if developers cant borrow money, they cant build larger resi projects ... and even if they can borrow money, they cant build at a profit if people cant borrow enough money to pay for their product. That's also Sydney in a nutshell.

Elsewhere in NSW - outside of Sydney, in regionals for example - we are already seeing the positive effects of a tighter lending environment. I'm not talking about Newcastle and Wollongong. I'm talking about Goulburn, Orange, Bathurst, Port Macquarie , etc ... they are all seeing strong rental and capital growth - because they are affordable. And while that's fantastic for me and my clients who are buying dual occ's there ( with plenty more upside to come in 2019 as the trend continues) it doesn't help Sydney prices or Sydney growth potential....

Certainly, the return/resurgence of the first home buyer segment is welcome news for Sydney - and they will be the major reason why the Sydney market is likely to plateau or modestly correct, rather than $hi7 itself over the next several years, as they will replace some ( not all) of the investors now sidelined. But they are going to be one and done buyers rather than repeat buyers , and they will largely be purchasing at a limited price point ( limited by Sydney standards anyway ) Stamp Duty concessions cut out @ 850K. And they wont return as repeat buyers/ investors in Sydney resi for many many years because they will need equity - which isn't coming as growth has stalled and they will need borrowing power - which they'll have far less of because they have a large PPOR mortgage.

The recent zoning changes allowing duplexes on narrow blocks - which have since been postponed/rethought - got people excited - but the maths still didn't make duplexes feasible in Sydney. And even if the numbers worked, we come back to getting the borrowing power to get it done. Sure, some cashed up people could make it work... but we are talking about exceptions to the rule, not the rule.

As far as how much money you can get from a bank. How long you can have that money on IO terms, and how high a DIR you can get to... APRA is the ONLY player in the game.

 

I agree with this. However, I do not think that regional growth is sustainable. Money has just moved from Sydney to other areas because of perceived affordability (in comparison). Sustainability of growth in regional areas should have people concerned.

 

I meant to say that regional markets are not affordable by historic standards which is what has me questioning sustainability.

 

They’re not going to get to Sydney or Melbourne levels - but I’ll take the 10% growth and 8% rental growth ... even if it levels out now , the properties I’m involved with will tick along nicely from that position and pay themselves off over @20 years . It’s a long game of dividend reinvestment now

 

"but I’ll take the 10% growth and 8% rental growth"

Can you please provide some details where you are getting these returns.

 

Orange and Bathurst - dual occs .you can find details on numerous previous posts of mine - including comments from forum members who have purchased there , confirming same. The basics are that they sell for 570-580k and are being revalued at 620-630k on completion . Rents have increased from 620p/wk to 665 per week in the last 12 months