Gotti is maintaining the panic today:
Not all of those approvals will have led to a construction start, but a look at the cranes around Sydney and Melbourne shows that a big chunk of the more than $65 billion in approvals in 2013-14 and 2014-15 has now been initiated.
…The problem is that the security for these development loans is usually not the developer’s balance sheet but the forward sales. With local investors, the banks usually require a 10 per cent deposit and with overseas buyers it can be up to 30 per cent. The vast majority of these sales contracts do not have an agreement from a bank to provide the funding.
Unfortunately, it is now much harder to get money out if China and Australian banks are being squeezed by APRA. Our local banks have started pricing apartments at valuations significantly lower than the original purchase price when loaning for settlements.
I hope that Harry Triguboff is wrong and that the Australian banks have only a token exposure to the $65bn developer market. But I am very confident he is right.
…all our efforts must now be directed to getting our banking system through this crisis.
The dumb bubble in other words. But what does “all our efforts” mean? Gotti clearly wants APRA to ease up but that’ll just make the problem even bigger.
You’re right to warn of the problem, Gotti but you’re very wrong on your solution. The bubble is inflated and will now deflate. That deflation should be best supported into a soft landing where possible but APRA should not ease prudentially. If anything it should keep tightening and the RBA should cut rates to lower the dollar and generate greater growth outside of the dumb bubble as an offset. What should have been done four years ago.
It’s time for Highrise Harry to take some pain.
