There is no such thing as “The Australian Property Market.” Time and again I see tables and charts of price growth of each of our cities, say Sydney at 15%, Melbourne at 10%, Perth at minus 4% etc. and then at the bottom, some bright-spark averages it all out and then uses that number to report that across Australia property market has over the last year gone up by 6.5%.
It’s just so ridiculous – Australia is such a vast country – and its capital city markets as so different, it defies all logic to try to lump it in as one. Yet this is what is being done now.
And even worse – sections of the media, some people in Government, the big banks, the Australian Prudential Regulatory Authority (APRA) & the Reserve Bank have all lost it with property – saying the market is overheated, some thinking there is a bubble, but all voicing concern about our national property market. However, what they are concerned about is principally the white hot Sydney market, and to a lesser extent Melbourne & Brisbane.
APRA & the Reserve, in collusion with the big banks are preparing some bad medicine for you to swallow.
And if you are a property investor, anywhere in Australia, it’s going to cost you.
In fact, it already has. APRA & The Reserve Bank began the ratcheting up process about 18 months ago, when they leaned on the big banks to limit their lending to investors. The result was a tightening of money lent to investors, increases in the level of deposits required and finally, profit boosting interest rate rises targeted just at investors, who now pay more for their loans than owner occupiers.
It’s so wrong that investors are being targeted thus – we simply are not responsible for price increases. And who else is going to provide rental property to the market for the 30 plus percent of people who either choose to rent or cannot buy? I am pretty sure that State & Federal governments are not going to want to massively increase their public housing budgets.
Property developers have been similarly affected, with funds to build new land and housing drying up. The challenge with this part of the policy is that it only tightens supply further in a market which has been undersupplied for some time. And that can only lead to more price increase pain.
Round two of APREA ratcheting will be more of the same – you will see yet more tightening from lenders and several more interest rate rises for investors, even for those with existing loans. And trying to get a new loan will be even harder – with higher deposit requirements and more severe servicing limits, which simply means you will be able to borrow less that you could previously. This will shut many would-be investors out of the marketplace.
Foreign buyers have been slammed with double whammies of massive stamp duty increases and restrictions on lending – that will slow them down to be sure. The challenge with this is that those buyers were relied upon to purchase new product off the plan to get to the minimum sales that the lenders required to fund developer’s housing projects. Without those buyers, the game will change and even more projects will not get off the ground, further limiting the supply of new housing. Developers will need to target their new product very much in the affordable pricing range, aiming at owner occupiers and first time buyers.
And all of this principally because the Sydney market has kept going up and up, even after many people, including myself, had considered the market had turned over a year ago.
Our far more clever neighbours over the ditch in New Zealand had a similar issue with their market in Auckland, which ranks well up there in terms of affordability issues on a global scale. So what the smart Kiwis did, rather than smash the whole NZ market, was introduces these “cooling measures” just for buyers in Auckland – where the problem actually was occurring. Chinese authorities are similarly applying policy adjustments in just the cities where housing price growth has gotten out of hand.
Why then can’t we do the same?
If the Sydney market won’t slow of its own accord – which it will by the way, markets always do – the Reserve Bank, APRA & the Federal Government can apply their blunt instruments upon the scone of Sydney only, rather than the whole country.
Can you imagine what these further tightenings are going to do to markets like Perth, which are trying to recover now? These new policies are going to slow those green shoots or even stop them dead. For no good reason. They will delay any recovery for months or maybe years.
So what does this mean for you?
If you have any variable investment home loans, you might consider investigating having some or all of those loans in to a fixed interest rate for a period – look closely at those loans that will still allow you to make capital reductions. Remember the disadvantage is that you are locked in and if you sell the property and the rates have changed, there may be early payout penalties – get some advice from qualified mortgage consultants or even your financial adviser if you prefer.
If you can, and have not done so already, ramp up payments on any housing loans to the maximum you can afford. Paying money off while it is priced cheaply seems to be a good idea to me – it is the easiest time to do so. One way or another, even if official interest rates don’t go up for a while, which I can’t see just now, housing loan interest rates look to be on the increase. Making extra payments now, while the rates are relatively low could help you greatly as rates do march up.
I don’t see being able to purchase property getting any easier in the future. I certainly don’t see prices collapsing, though I do expect that prices may ease at the end of their growth cycle – they usually do for a time before a period of recovery.
So you may need to look at alternate ways to get property investing exposure, like investing in to syndicates and crowdfunding – you will begin to see this a lot more.
I intend to be a catalyst for this in Australia and look forward to bringing you opportunities as and when they arise.