From Gotti today:
If the banking industry follows the Commonwealth Bank-owned Bankwest and tightens the criteria for negatively geared loans, we will see a fall in dwelling prices in parts of Sydney and Melbourne.
Indeed, if you want to know what might happen, my suggestion is that bankers visit Vancouver, where dwelling turnover is down 40 per cent and prices of stand-alone houses are down 6 per cent and look set to fall much further.
If that happens in Australia, the bad debts of the banks will rise because of the enormous sums that have been loaned based on current high dwelling prices.
As I have been pointing out in previous commentaries, Chinese money has helped drive both the apartment and housing markets in select areas of Sydney and Melbourne.
The severe clamps recently placed on money exiting China and the jailing of officials for corruption has substantially reduced Chinese buying, although some Chinese are getting money out through perilous ways to fund their off-the-plan settlements.
Normally, when a major buyer is removed from a market, prices fall. But it has not happened because, given Canberra’s superannuation turmoil, Australians have decided to purchase negatively geared properties on a massive scale, because interest and running costs can be deducted against salaries. And that enthusiasm has been helped by higher rents.
Higher rents! 2.7% yield minus costs, inflation and interest plus tax rort equals -3-4% carry!
Anyway, this kind of thinking is straight from the mouth of Gotti’s good mate Highrise Harry who we know visited upon APRA mid last year:
Australia’s leading apartment owner and developer, Harry Triguboff, visited the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission this week. The visits were unprecedented and reflect the deep concern Triguboff has with the looming potential crisis in sections of the Australian apartment market…
…The Chinese investors were told that if, on apartment completion, they could raise another 20 per cent to bring their equity to 30 per cent, the bank would then lend them a further 70 per cent, but this offer was subject to valuation of the apartment at the time of settlement and a security assessment of the buyer…
The big rise in supply has caused the Australian apartment market to slip…if buyers of off-the-plan apartments can’t raise the money that they counted on from the local Australian banks and/or in China, Triguboff estimates that apartment prices will fall by 20 per cent to 25 per cent…
…Triguboff wants APRA and ASIC to allow the banks to honour their undertakings to fund 70 per cent of the apartments even if those undertakings had escape clauses based on valuations and so on. If the loan undertakings are not honoured, it will not only cause an Australian downturn and lower apartment prices but severely damage the relationship between Chinese investors in Australia. It may take a generation before they return to our market.
What kind of bizarro world do we live in when these kinds of bald-faced rentiers get special access to public servants while the rest of us (including the market) are left to trade in the dark? We all know APRA should be doing more. Even the RBA says so. Is it or not? Nobody has a clue.
If you want to know why Donald Trump and Pauline Hanson are winning, this is it.
