Sydney's housing bubble deflates as loans revisit GFC declines

If the investors with 10 IPs were relying on IO then they never owned the properties anyway. The bank owned them. Better for economic stability that people end up actually owning fewer properties.

 

Thanks Euro for the update. Great returns.

 

Appears they just got a little better

13 Stevenson Way Orange NSW 2800 - House for Rent #424025850 - realestate.com.au

13a Stevenson Way Orange NSW 2800 - Unit for Rent #424025858 - realestate.com.au

 

yes, that is correct. If I take out a 30 year loan at P&I then my repayments are X. If I keep the loan on IO for 5 years then roll to P&I then my payments are Y and Y is greater than X. If I extend the IO for another 5 years then to P&I then my payments are Z and Z is greater than Y etc.

Imagine someone coming off 15 years of IO to P&I and now they have to pay back the principal in 15 years? Huge repayments!

Or they can refinance back to 30 years P&I subject to servicing.

 

Not at all. Not that I am a professional property investor but I have some IPs. I just do things differently than 2 years ago. Good investors are adaptable and find new ways to do things when the rules change. Adapt and thrive!

Not necessarily. They are talking about highly leveraged investors. I was more highly leveraged with 2 ips than with 4 ips. The two IPs were purchased at 105% LVR lends. The next 2 where purchased at much lower LVRs etc.

 

Its Investors inability to withstand premium rise after IO2PI rollover puts them at-risk,
One can be at high LVR yet be able to withstand the premium rise,
on the other hand one can be at low LVR yet not be able to withstand the premium rise.

To me high leveraged investors are those who are very close to their capacity to repay, irrespective of LVRs or numbers.

 

That's interesting but not relevant to the statement by the poster "They must be talking about the investors with more than 4 x IPs or more."

That is in response to a newspaper article:

Highly geared borrowers tipped to face extra scrutiny

According to the article, what is "Highly geared"?

"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."​

Indeed, the focus on loans with high debt-to-income ratios is being seen as the third wave of APRA's macroprudential policies, following its 10 per cent cap on housing investor loans introduced in 2014, and last year's cap on new interest-only lending.​

The answer is in the article. "Highly geared" is not related to the number of IPs and not related to capacity to repay. "Highly geared" is a debt-to-income ratio of more than 6.

Depending on my income, deposit and the price of the IP, I could be "highly geared" after one property, two properties, three properties or 10 properties.

EDIT: does anyone have any idea if debt-to-income ratio includes rent?

 

No debt to income is just purely look at the ratio between total income vs total debt.

 

It's the 15 years IO rolling into 10 years P&I you have to worry about .......

Though at that stage ( if you bought well ) you're sitting on your second growth cycle and have lots of equity and you can sell and then pay down other loans

Cliff

 

Regarding Sydney

Is there a shortage of credit? no
Banks are lending nicely but want the 20% deposit

Is there a shortage of employment? No
Great increase in jobs building things and servicing the greater population.


Is there an excess of housing supply? No
Massive increase in immigration means supply is super tight and not enough apartments are being built actually.

Is there a drop in Sydney’s median price? Yes
But it’s caused by the super expensive properties above the median no longer selling.

Have people stopped buying housing in Sydney? NO
Housing is selling like hot cakes, not the expensive properties most can’t afford.
Everything below the median is growing in value still at a rate in excess of 7% and will continue to do so for at least 2 years.

Take away message get in now and buy as many Sydney properties that you can that are below median price and rent them out. Because over the next 5 years these will capital appreciate in a huge way because the housing shortage will exacerbate and nothing is going to stop the huge immigration that’s coming in the next year.

Buy when people are fearful, sell when they are reckless.

Sydney property has only ever gone up, and it will continue to do so. It’s regarded by most as the worlds greatest city on earth.

 

To clarify, I mean rent received from an investment property. If I have to pay income tax on it then it is income as far as I'm concerned. Also, banks use rental income in servicing calculations.

 

Hi Ald

That's sounds purdy gud stuff ya smokin' dude .

I seriously hope that was Satire and not a seriously held opinion you're acting on ....

Cliff

 

Sydney property crashed in the 20th Century. I suggest you do some research.
What happened to Australians the last time house prices fell | The New Daily
Plenty of retailers are closing shop. People are tightening their belts. So, others are losing their jobs.

 

That's a good article.

"Dr Gavin Putland, honorary director of the Land Value Research Group, who has been writing about Australian house prices for more than a decade, said that “fundamentally, house prices fall because they’re too high”."​

That's the way I see it too.

 

Sydney property also dropped sharply for a few months after the GFC , but not enough sales to show the real extent of the drop in annual figures which are averaged over a year .

Saw what was happening first hand as we were buying .

BTW , that article is over a year old .

Cliff

 

I was not thinking about the GFC. The then Federal Govt kicked the can down the road with that and kept the bubble going. Had that had courage they would have allowed things to hit the fan then.
If you look at history debt binges only end one way.

 

Yeah your smoking some high grade stuff here
I don't understand this obsession with prices
Time and time again it has been shown that it is the availability of credit and the debt/income ratio that underpins prices
Never ending population growth is a possibility and a recipe for rising premium land prices but a dystopian urban future that is more than likely to lead to a populist backlash.
Prices at some point in the future are guaranteed to be lower than today in nominal and real terms. No doubt about it.
London prime is down by 15% over 18 months.

 

That article is garbage. Interest rates went up for reasons other than an Australian property crash. Unrelated.

Nope jobs are plenty.

GDP is growing because the govt bizarrely includes this in the GDP figures which then allows them to print more money to use on building infrastructure which grows jobs allowing higher immigration which creates demand for property which causes developers to get the easy credit.

The rise in house prices means Australian banks can borrow more money because their assets appear richer then their loan liabilities and they look richer on paper for stock exchange purvhasers and foreign lenders.

The rise in asset prices allows property investors to have greater equity to buy the new properties with P and I loans now.

Sydney property under 1.2 million is still selling very well. Nothing to worry about. All indicators are that NSW, Brisbane and WA are entering a boom phase. The job vacancy figures show it. WA is getting incredible growth in project starts and rental vacancy has halved recently and by summer rentals will be hard to get.

Right now the smart money will buy anything within 15 km of the Perth CBD, north of the City, 3km to the beach near a shopping centre and Freeways. Suburbs Like Karrinyup, especially that part south of Karrinyup road, or parts of Carine are the best investments in Perth in my opinion.
They have experienced price drops early last year and are the most desired suburbs and that are in the 3 -4 times annual income of a proffesional couple.

This summer you will see a house go on sale there and 20 people wanting to buy it.

 

Well, you can be accused of many things but not inconsistency.