-this orgy of property speculation whilst not new reached stratospherical heights in the last decade
FOR those unaware a lot of this coincided with:
.record low interest rates
.high population growth fuelled largely by high immigration and visa manipulation
.deregulation of much of the financial system
.removal of planning codes and pulling apart the building compliance system
.sale of public assets and significant privatisation of much of the economy
…the list goes on
SO it was good for some while the gravy train stayed running but it … was largely built up on:
.a mountain of debt
.it was not about housing, shelter and community it was about investment and returns to shareholders
IN less recent times Australian home buyers may recall:
-they were paying about 18% interest rates on their home loan, today most are paying less than 5%, fine but…
-paying off a home loan was an aspiration that was normal; now it is increasingly unobtainable
.Millennial home ownership rates have fallen 26%
-first home owners have represented the smallest percentage of the market than in previous decades
-as the purchase price of homes has increased dramatically the mortgage servicing costs have escalated too, representing in a lot of cases over half of the household net income
-meanwhile homelessness has remained very high (more than 116,000 across Australia … question the figures with many couch surfing)
-wage growth has hardly kept up with inflation for over 5 years
-record profits have been achieved in the banking sector
-the black economy had grown unchallenged in any meaningful way
-AML (anti money laundering) legislation has again failed to be enacted
And now what do we hear:
-the government must not react to the Banking Royal Commission in any way that puts at risk the mortgage brokers … for heaven’s sake
-an over-reaction like tightening the rules might stifle growth, well too bad for those whose lives have been ruined by mal-practices, poor regulatory systems and various watchdogs at lunch
-there seems to be a cohort of people determined to ensure their little slice of the gravy train continues on track to make for them an even bigger pile, to hell with:
.a fair go, it’s not time to step back, no way
.fairness, forget that, it’s only the weak victims of this world that don’t make a truck load
.with the system stacked in favour of the wealthy a sense of entitlement is in essence a belief system
.that regulation and compliance hinders the economy and enterprise
ONLY GOOD PUBLIC POLICIES CAN DO ANYTHING ABOUT THIS GRIM NARRATIVE!
In the heady days of the property boom, as big city house prices jumped ahead in leaps and bounds, investors reigned supreme, swatting away first home buyers with their superior purchasing power.
It was a win-win for the investing class. They had willing banks and favourable tax laws working for them, pumping up property prices and capital gains in a virtuous circle.
According to property investor Michael Ilieff, who arrived in Australia as a Bulgarian refugee almost 30 years ago with $8 in his pocket, the tables have well and truly turned.
A combination of hard work, negative gearing and interest-only borrowing helped Mr Ilieff build a life through property, but right now his investment record spanning decades counts for nothing.
He wants Westpac to extend his interest-only loan on a property bought well before the Sydney and Melbourne property boom took off.
Even with prices falling, the property is worth much more than he bought it for, but the bank is treating him like a newcomer.
“Everyone (investors) are suffering from that,” he told The Business.
“Just the fact that they’re asking you how much you’re spending on your Netflix, how much toothpaste do you use.
“They really make it hard to borrow money. It’s ridiculous there’s just a blanket formula and no flexibility.
“I’m not sure how you can run the property market or anything to do with the economy if the banks continue to be this strict.”
Investors are big players in Australia’s property market, representing about 42 per cent of total mortgage demand.
A significant shift in investor sentiment could lead to a serious downturn in the property market with job losses in the labour-intensive construction sector, not to mention the serious knock-on effects to the services such as architects and lawyers, as well as retailers who sell household goods.
Peter Koulizos, chair of Property Investment Professionals of Australia, believes the banks’ tighter lending policies in the wake of the regulator crackdown and royal commission has made it very difficult for investors.
“Even though 2018 was a tough year. I think 2019 will be even tougher,” Mr Koulizos warned.
“So far as borrowing money is concerned this is the worst I’ve seen. It wasn’t this bad during the ’90s recession, and it certainly wasn’t this bad straight after the global financial crisis.”
Investors have also been singled out by banks for bigger interest rate hikes. On average, loans to investors have gone up by 57 basis points more than loans to owner-occupiers.
But the biggest risk to investors, according to property research firm CoreLogic, is falling prices. Investors will no longer be able to ride a wave of capital gains.
CoreLogic’s head of research, Tim Lawless, said property prices will continue to fall through 2019 and possibly into 2020. In Sydney they are already down more than 11 per cent.
“It’s a bit of a perfect storm in many ways,” he said.
“Rental yields are beginning to weaken or fall while we’re also seeing unprecedented levels of supply coming onto the market, which could lead to further falls if demand softens.”
Policy changes from Coalition and Labor hit investors
That is not all. The Coalition Government has made depreciation allowances less generous, meaning many investors are already getting smaller tax deductions.
Investors are also bracing for a possible change in government, with Labor proposing to wind back negative gearing and the capital gains tax discount.
The Opposition plans to halve the capital gains tax discount from 50 per cent to 25, while negative gearing will be ended for established housing and restricted to newly built properties. Although the changes will be grandfathered, meaning that current owners will keep their tax benefits.
The Government is arguing the proposals will trigger a property market collapse, but Labor maintains its policies will stimulate investment in new dwellings and help first home buyers enter the market.
Tim Lawless sees Labor’s changes as another headwind that will further dampen investor demand and may encourage riskier behaviour.
“Most investors target established homes and the risk profile of new housing, particularly apartments, is really quite high now if you’re buying off the plan,” he said.
‘No panic stations yet’
Property group Colliers International sells a lot of apartments off the plan.
“Out of the 10 buyers per apartment that might have been there 12 to 18 months ago, you might be down to five or six now,” Colliers Investment Services director Oliver Totani observed.
“There are still buyers out there. Will it remain difficult over the short term? Absolutely.”
The fear is that the combined impact of falling property prices, softer rents, a lending crackdown and unfavourable tax changes might turn investors into forced sellers or trigger a mass exodus from the market.
“There’s no panic stations yet,” Mr Koulizos said.
“But you will see less property investors at auctions or negotiating property for sale.”
He cannot see a mass sell-off without a significant rise in unemployment or interest rates.
As is usually the case when circumstances change, there are casualties and some investors who bought properties at the top of the market may fall victim to the banks’ tougher approach to lending.
Michael Ilieff suspects some investors have become collateral damage.
“It’s a formula to make you look bad. It’s a formula for you to fail,” he said.
“The bank wants to push you to the end to make you sell out, particularly for someone who might have purchased two years ago and doesn’t have enough equity in the property. The bank probably wants to clear its books.”
It is hard to see investors willingly abandoning the property market just yet because most of them are in for the long haul and the transaction costs are high.
‘In any sort of downturn, you would generally see investors riding it out looking for that long-term capital gain and hopefully trying to improve their yield as they pay down their principal,” Mr Lawless said.
“And are there better places to put your money? At the moment, probably not.”
Michael Ilieff is confident conditions will eventually improve. They always have, but this is not the year to expand.
“My plans have been put on hold. Wait and see.”
But his faith in bricks and mortar is unshakeable.
“The stock market has never really grabbed me. Property is something you can see, touch, manage. Dirt is the best investment,” he said.