The credit squeeze in Perth and Darwin

Perth's capital losses have accelerated in the last few months - they almost stopped earlier this year which caused a lot of people to celebrate that bottom had been hit. Recently they lost -2.15% in the last quarter which suggests the losses are picking up (again) to an annualised -8.5%.

 

Darwin is actually shrinking - people are leaving because with INPEX finished and no new large construction projects on the horizon that temporary workforce is moving away. Darwin has always moved out-of-cycle with the rest of the nation's property prices but it's also a very small market (smaller than Geelong) and so they're quite vulnerable to the vagaries of the local NT economy and Commonwealth spending. They will have to reverse the population slide if they've got any hope of arresting those terrible figures - Darwin metro area units have lost 13% in the last twelve months alone.

 

So pretty much what happened to Perth then when all our O&G construction boom jobs finished? I figured as much which I why I gave it 2 years to eat up over supply. Might be more though. Perth shrank quite badly but with very little new starts for resi construction the over supply has gradually being eaten up and next year will I think start the signs of under supply.

 

Fair call, Perth is a much larger city than Darwin, more than ten times the size. Perth is still slumping for the time being but then that makes it a more competitive place to do business and easier for new entrants to buy in.

 

The issue across the country (Perth included) is that the underlying demand is essentially where it was, but we’re now seeing a really big dent being made on the supply side of credit which for all intents and purposes meters the demand from the buyers themselves.

It’s no coincidence that Perth was looking like it had stabilized (on buyer demand) but further falls have been seen given these buyers have now had their credit restricted. If banks won’t lend more than $X + 1 and a seller puts their property on market for $X + 2 then it doesn’t matter how much the buyer wants it, they can’t get it and the seller has to knock their price back to $X + 1 and boom, you have price falls. Further to that, the bank then sees this fall and doesn’t want to expose themselves further so next time only is willing to lend $X and so on.

Not to harp on about negative gearing, but this is where Labor have it wrong when they are saying that it’s actually a good time to implement their policy as investors are out of the market and therefore it won’t impact them as much. They’re failing to recognize that this is only because of credit supply, not underlying demand. Once the credit tap is turned back on (and if their policy is introduced), investors won’t come back as they would currently. They are aiming to constrict the underlying demand which is still there currently.

 

Rules only temporary affect market, if they want to implement it, any time is good time else there is always a reason not to do it.

prices will reset and asset reprice and we have investors coming back at cheaper entry points

Law of supplies and demand and return on investment and capital will rules all regulations when the price is right.

Just like the argument remove franking credit stop people invest in Australian share market .. it just red Hairing stuff.. price is right there will always be investor