WE ARE SITTING ON 5 PROPERTY ECONOMIC GRENADES PART-1
By Edwin Almeida
October 3, 2018
In my interview with Martin North from, Digital Finance Analytics, I share – an on the ground observation of the property market, in Sydney. How five key elements, are working together and are impacting the property arena.
From my perspective, I see what many have failed to notice or acknowledge, in the property sector. These are and what I call, property-economic-grenades. There are five and are listed below. I also share, some detail to go with them. However, not too much but enough not to bore you.
It is my opinion and one shared by Martin, that we have built enough properties to be absorbed over the next few years. I go further and quote, enough for the next 5-7 years. Yet, more are in the pipeline, on the drawing board you could say.
We note on the video and concur, about 200,000 dwellings, are presently in the works. This is across the East Coast Cities and a large percentage in Sydney.
Under-supply, along with the “high-migration” rhetoric, has dominated the mainstream media. Not too far in the distance, were also utterances of – not enough land. All three factors, has led to mass construction and at an alarming pace.
Interest Only Investors
Many property investors that had an “interest only” (IO) honey moon period, are now finding it difficult to refinance, to “principle and interest” loan facilities.
Recent and more stringent criteria put in place by banks, have created a difficult path for the refinancing of property. Borrowers are now forced to navigate through - serviceability concerns, lower valuations and lower rental income ratios.
Last year’s figures showed, 5 percent of IO borrowers were not being approved. The current figures, such sourced by Martin, have now climbing to 40 percent. The alternative for these investors? To sell.
On or about, 140,000-180,000 dwellings are maintained vacant, across the Eastern Cities and most can be found in Sydney. These properties, are completed and settled, newly built dwellings. Mostly held by International Investors. However, not offered to the rental market.
Now, should anything go amiss internationally and we are mainly speak in China, and we could face a large portion of these properties, on the re-sale market.
I have labeled, investors that bought off-the-plan and are not settling, being mostly from overseas, Houdini-Investors. Buyers that will disappear and prefer to lose their 10 percent deposits; rather than settle.
Leaving their overpriced apartments, to be re-bought by the local market. And the local market won’t buy them. Nor will new International Investors – as they will face further obstacles: one, pay a higher Stamp Duty fee and second, have very little opportunity to obtain local funding.
I dare say, most savvy-investors, have sold and or - have their properties on the market already. Some may be still lagging and waiting for spring. Getting out nonetheless.
Owner occupiers, may not see the right timing to sell. However, many savvy-investors can see the writing on the wall, and are also not getting as much in rental dollars, as they were. Therefore, there are pockets of Sydney, I refer to one being the Blacktown LGA, already experiencing an increase in sales-listings. Other LGA’s are also following suit.
From all the figures and scenarios shared above, all we need, is another 5 percent of properties to hit the sales, or rental market-arena, and this will choke the Sydney property market.
Live for-sale property listings in Sydney
There are currently and on a month to month basis, on or about 28,000-32,000 properties For Sale in Sydney. Notably, there has been on average, 15,000-16,000 new rental-listing on a month to month basis. Both averages noted over the last 6 months, in Sydney.
If we added only 5 percent from the figures shared above, the amount of properties on the market in Sydney, as LIVE listings, will run at around 40,000-50,000 properties up for sale. We may begin to see signs of what John Adams calls – Economic Armageddon.
Keep in mind, all this is playing out over a powder keg – LOW Interest Rates and the lowest cash rate (RBA) ever.
Yes, my call is above 40 percent drop in home prices in parts of Sydney. Some areas, will fall quicker and further than others. I don’t entertain the Sydney-averages as a whole, as much as do different pockets of Sydney. Clusters of suburbs and also areas within suburbs.
If you want to be in the know - Reach out to your local agents and obtain, multiple points of view and insights, into what the market is doing in your areas of interest. Don’t tie yourself down to one source, most agents are happy and willing to provide free information. And if you want a further opinion, feel welcomed to send me an email.