Western Sydney ground zero in interest-only mortgage bust

It’s all so bloody predictable. Via the AFR:

Selling agents are starting to reveal the truth behind recent listings in Sydney’s west with Belle Property Strathfield’s Jimmy Kang saying up to 50 per cent of his clients were asking him to sell their homes in Sydney’s western suburbs because they can no longer afford their new principal-and-interest mortgages.

…A couple asked him to sell a two-bedroom weatherboard home in Veron Street in Wentworthville, 27 kilometres west of Sydney, for $950,000 when it was only worth about between $820,000 and $830,000. They bought the home for $790,000, two years ago.

“I asked them where they got that number from and they said that was the number they need to pay back the $200,000 they borrowed from family to buy the home as well as repay their interest-only loan,” he said.

“A lot of them initially paid $2000 to $2500 a month on their interest-only loans, and now they have to pay $4000.”

Auctions in Western Sydney’s mortgage belt have collapsed:

This is exactly what happened in the 2003 Sydney bust. Western Sydney is basically a low income ghetto that occasionally catches the house price bug then is astonished when its paltry income can’t support the prices.

This is going to melt down worse than 2003. Back then it was bailed out by the mining boom, rising rents and wages. As well, other city house prices took off and supported consumption. Today Western Sydney is the epicentre of the mass immigration wages crush and falling rents, and it’s increasingly national.

Worse, recall the Variant Perception hedgie mortgage sting of several years ago:

> The property bubble in Australia is now one of the biggest in history. It has reached proportions last seen in Japan before 1989 and Ireland in 2006. In Japan’s case, real estate prices fell 80% over the next decade and in Ireland they fell 50% over the next six years.

> We expect a very big fall in Australian house prices. In mining towns, prices will fall by 80% in some places and in big cities such as Sydney and Melbourne, we expect prices to fall 50% in many suburbs and areas.

> The Australian economy is highly geared to Finance, Insurance, Real Estate and Mining. The combined size of all of these sectors is 21% of GDP. The multiplier for these sectors is much higher, however.

> Underwriting standards are very poor at the big banks. We spoke to many mortgage brokers and banks, and getting a high loan-to-value ratio mortgage is simple and requires only two payslips. Banks do not generally verify the payslips. The local regulator ASIC confirmed this in a report last year, although the situation is even worse than the regulator believes.

> Australia’s big banks will be illiquid but not insolvent. Australian banks require large scale wholesale funding. In the event of a banking crisis, it will be difficult to roll the wholesale funding without any public sector guarantees. The Reserve Bank of Australia will guarantee the banks and charge a fee, as it did in the 2008 financial crisis. We anticipate most bank shares will cut dividends entirely, raise capital and stock prices will likely decline 80%.

The Australian dollar should trade towards 0.40 against the USD. In the Irish and Spanish banking crises, the bust was long and painful due to the implacability of the euro. The central banks couldn’t monetize liabilities and improve liquidity, and the euro didn’t devalue to adjust. In the case of Australia, the AUD will be the adjustment mechanism and it will fall hard. A weakening currency is what we have seen in almost all other banking crises.

One of the most popular programs in Australia last year was Struggle Street, a series about the poor Sydney neighbourhood of Mount Druitt. It beat other reality TV shows and was the most-watched show in Sydney. It depicted poverty, alcoholism and drugs. The show was condemned by some as “poverty porn” before the broadcast but received a strong response upon broadcast and trended on Twitter around the country. Prices in Mount Druitt are up over 50% since 2012 and in neighbouring Rooty Hill they are also up 50% since 2012.

In Australia, even the poor and drug-dependent can be property millionaires.

So how do people on modest incomes afford such expensive houses?  Poor underwriting is the answer.

The Reserve Bank of Australia and the Australian Prudential Regulatory Authority (APRA) all insist that there are almost no low-doc or no-doc loans. They also insist there are few high loan-to-value ratio loans. The truth is much worse.

Underwriting standards are poor in banks. The regulators trust the big four banks’ statistics, but we’ve seen that underwriting standards are much worse than advertised.

In our due diligence, we told mortgage brokers and bank managers that we required a 95% loan-to-value mortgage at 10x our gross household income to buy our dream house, and we were consistently told it was not a problem at all. All we needed were two payslips and mortgage insurance. We asked if the bank would call our employer, and both reputable and disreputable brokers said banks rarely verified payslips. Also, “most of the people checking documents are in Indian call centres.” Furthermore, we were told that as long as the payslips had the right Australian Business Number (ABN) and the business checked out, that was enough.

This is not how it has to be. In the UK, for instance, after the credit crunch, banks are far more thorough when verifying income. The bank cross-checks payslips with one’s bank account to see the net amount received corresponds to the gross amount paid. A lengthy affordability questionnaire must be filled out to make sure that pay is sufficient to cover mortgage payments, that are also stress-tested for higher rates. Bonuses, once nonchalantly taken as regular income, are much more strictly dealt with. No-deposit and minimal-deposit loans are much rarer and harder to obtain. Similarly, the US has tightened lending standards since the financial crisis.

But in Australia, more alarmingly, we were informed from various sources that disreputable brokers had software to make authentic looking tax returns for clients who needed mortgages. We were encouraged to lie about our incomes by multiple brokers in order to get dodgy loans past bank loan officers.

It should come as no surprise that lending standards have fallen as third-party origination of mortgages has risen. This was typical of standards in the US in 2005-07. Today, almost half of new housing loans are originated by third parties.

But our biggest surprise came when we visited a building society (a thrift). The bank manager told us her lending standards were conservative compared to the big banks. She would check our income more thoroughly. She then encouraged us to take a 95% loan to value ratio at 10x our gross income because, “It isn’t worth saving another 5% when house prices will rise more than 5%. By the time you save the 5%, prices will rise exponentially.” Those were her words, not ours.

Needless to say, John Hempton of Bronte Capital and your dumbfounded analyst from Variant Perception wandered around Sydney in shock and amusement after every meeting.

And it will be made worse by this, also at the AFR:

The Chinese government has tapped apartment developer HPG, a subsidiary of Chinese conglomerate Hailiang, to divest its overseas investments, as pressure to claw back capital in China mounts.

HPG has been shopping quietly off-market for a partner or a buyer for its $600 million flagship apartment project, “One Sydney Park”, a 400-apartment project spanning 2.1 hectares in Erskineville, 6 kilometres from the Sydney CBD, sources have said.

…HPG will not be the only private company to be asked to repatriate their capital to China. It is widely known the Chinese government has issued instructions through major Chinese newspapers for private Chinese companies to relinquish its investments outside China, this time in its effort to strengthen its economy as the trade war with the US escalates.

Western Sydney is ground zero as the interest-only mortgage reset detonates.

Comments

    • China wont get crushed by America – what an absurd proposition – that would devastate the entire planet financially.

      The only real losers will be peripherals players like Australia – China and America might get a bloody nose or black eye – that’s it. Australia in the meantime will be in ICU with a drip line in our gullet and bladder bag at the other end.

  1. There will be so many wannabe vendors who anchor their price expectations based on what they owe rather than what the market will pay. When the only other choice is bankruptcy and reckoning with one’s own stupidity, what can you expect? This will lead us, ironically, to an unmanageable mass of insolvent borrowers, which will then become the problem of the banks. Extend and pretend it is!

    • Yes. Let me check the AFR’s maths:

      “A couple asked him to sell a two-bedroom weatherboard home in Veron Street in Wentworthville, 27 kilometres west of Sydney, for $950,000 when it was only worth about between $820,000 and $830,000. They bought the home for $790,000, two years ago”

      Two bedroom weatherboard? Out there? Ok. “…only worth about between $82,000 and $83,000.”.

      Fixed.

      • I don’t understand the couple’s maths. If they bought it for $790k with an IO loan and a loan from family how is that now $950k?

        Isn’t it just $790k plus whatever they hosed in stamp duty. Unless the family loan has been capitalising interest at an unsociable rate??

      • most likely, in the last 2 years the bank revalued the house upwards by $100K which the couple then drew on to do a reno, which they assume will add $120K to the value. “easy money mate”

    • We can all laugh now but when the Govt steps in to bail out Banks and Property developers using taxpayer money the laughter will be replaced by tears. Those 2 industries own the Govt. It is going to happen, as sure as night follows day.

      • Ivan, there are plenty of things they can do: introduce huge FHB incentive packages esp for new-builds (developer bailout) along with introducing any number of other related incentives to ‘get on the housing ladder’. In a crisis, the RBA will be major buyers of mortgages from ailing banks — this is basically using money created out of thin air which is very inflationary and inflation is a tax on the citizenry.

        Trust me mate, there are all manner of ways to bail out these chumps and many of them won’t be fully appreciated by an ignorant public, thus negating any political fallout.

      • Like the suspicious disappearance of the ATO foreign owned property taskfarce and scomo allowing non settled of the plan properties to trade overseas…..

      • Thats’s correct Edwin. No filthy trick will be over-looked in their desperation to keep all ponzis afloat.

        The defence: “We were trying to do what’s best for the people of this country.”

  2. “A lot of them initially paid $2000 to $2500 a month on their interest-only loans, and now they have to pay $4000.” and that is the bubble story right there. I could not for the life of me understand how people were paying these prices. Even with two good professional incomes once baby one and two show up you are really haemorrhaging cash.

    Average household income in this country is about $80k ??? The couple above would probably have average size mortgage out west.
    But underwriting standards are sound and policy is robust 🙂

    • The Horrible Scott Morrison MP

      This is just proof of how very valuable Australian property is compared to other property. These are real values, helped in no small part by how well the government runs the country for the benefit of ordinary people.

  3. Mining BoganMEMBER

    It makes one wonder how the family members who gave them the $200k are going to fare with never getting it back.

    This is going to be massive.

    • Let’s just say you’d wanna come from the right family, otherwise you might end up in the Daily Mail.

    • Honestly this is the most important quote in the entire article. We already know from Macrobusiness previous posts that bank of mum and dad is now one of the largest lenders in Australia 5th behind the big four – that was September last year – I am going to speculate based on the Royal Commission and say its probably doubled since then.

      https://www.afr.com/opinion/columnists/bank-of-mum-and-dad-is-now-australias-fifth-largest-mortgage-lender-20170926-gyp33c

      How many of these “loans” were taken out from equity ? Certainly NONE of them were taken out of Super, and few would have been cash or shares – I am guessing a HUGE amount would be equity – MOST.

      So what happens ? Can Macrobusiness look at this issue – if the 5th (now 4th) largest lender in the country is completely and utterly without regulation, and has lent entirely into the most risky segment – and is likely to crash – what are the implications ?

      Certainly banks are NOT doing due diligence .on this money – no chance, not ONCE would that happen.

      So people are forced to sell – can’t pay back mum and dad – mum and dad are ? Forced to sell…? Maybe not the home – but certainly deep impact into retirement funds etc.

      Really interesting.

      • C.M.BurnsMEMBER

        Depends on the proportion of Bank of Mum and Dad (“BOMAD” ?) that had paid off / mostly paid off their house, versus those with those that still had large debt against house to begin with.

        The former may find themselves with a new mortgage against their house and unable to retire when they planned. Lots of unhappy boomers who were looking to retire at 65 and now need to keep working. This has second order implications on youth employment prospects etc but it’s unAustralian to care about the young anyway amirite ?

        The latter could be the ones forced into selling family home if new combined debt vs ability to repay breaches lending standards etc.

      • What’s also missing is the information on how many BoMaD’s have gone guarantor on these western Sydney IO loans. If you think the big4 are going to go easy on BoMaD than you’re smoking something you shouldn’t be. They’ll be demanding the sale of both properties once the dreaded Negative Equity situation is undeniable. The loan will need to be repaid along with any penalties so chances are that the $200K upfront will be the least of their worries.
        I heard of a case recently where the couple got divorced and the partner that left the house got paid out by their in-laws. In-laws are now discovering just what a sinkhole they’ve purchased/guaranteed. Their combined incomes (parents and daughter) aren’t covering the P+I and the RE agent says they’ll need to accept a $150K loss if they’re to have any hope of righting their sinking ship. Everyone is in denial and scared to do anything lest they worsen an already bad situation. Last I heard the daughter was in hospital with a full on nervous breakdown.
        It’s resetting…It’s happening….and it never was going to be pretty.

      • “Certainly banks are NOT doing due diligence .on this money – no chance, not ONCE would that happen.”

        Well, technically they’ve already done it, when they lent BOMAD the money to buy a house (or open a line of credit). Of course, you’re probably right, given the banks until recently would happily lend $1M to anyone who could fog a mirror….

    • This is the source of all that Chinese ‘wealth’ that our media have been crowing about all these years. The amount of money that is owed by Chinese property owners here to family and friends back home is astronomical, I have no doubt. They are nothing more than punting syndicates.

      While the black money might stay put in bricks ‘n mortar here, those properties that owe large sums to groups of individuals will be under the hammer one way or another.

      • TailorTrashMEMBER

        …suggest that their legs will be under the hammer ( or the baseball bat ) ……tends to be how debts get collected in parts of China

      • kiwikarynMEMBER

        Better hope its owed only to family and friends in China. If owed to a bank or other lender the Chinese Govt is putting people on the social credit blacklist if they don’t pay their loans back.

  4. Had a ride from Melbourne airport a year back with a limo driver (cheaper than taxi or uber) who had recently bought a house for $600k (house and land package) in Mickelham. A horrid, squashed, badly built, cookie cutter heat sink out by the airport with little PT, no playgrounds, shops or schools etc. you could walk to. He had a $550k mortgage, plus $100k debt on the new Mercedes, and $20k debt on the taxi plate.
    Given uber were eating his lunch I asked if financiallly he was floating or drowning with two kids and a wife who didn’t work.
    “Drowning, but is ok, I have mortgage protection insurance so if I no earn enough my mortgage is paid.”
    Flat out didn’t believe me when I told him what mortgage protection insurance really was. Not until I introduced him to my good friend google did the reality hit home that he, and all the other muppets in his new street/subdivision were paying to protect the banks, not themselves. He told me he was paying $4k a month in interest. Said he’d lost $200k building a house he then rented out but the tenants trashed it and he had no tenancy insurance. Had to fix it up and sell it. Then he asked me what to do.
    “Get a building job, there’s a pile of work out there paying top dollar. Ditch the limo and taxi plate and reduce your debt. Sell your house and rent for a while and get your cash flow positive..The market is about to plunge and you’ve told me you have been fixing up your badly built hamlet even though it is new and the builder did a sh1t job with crap materials. So every one of these houses is garbage and massively over-priced with owners drowning in debt they can’t afford. What happens when interest rates go up or the economy tanks and loads are forced to sell. You’ll have $670k debt on a rapidly depreciating Merc and a shitty house worth $350k max.
    Says his wife loves having a house of their own. You choose. You’ll lose the house and still owe the bank a fortune. Get out from under while you can or die broke.”

    Needles to say he’s still driving a year later, but now the bank wants him off IO. Didn’t understand that he wasn’t paying any principal back. “What you mean, interest only?”

    The world is full of these poor suckers about to be torched.

    • The papers are already full of migrant wailing and gnashing of teeth about how Australia is failing to give them the jobs, the HECS loans and the Gov’t jobs needing security clearances.
      How incredibly stupid we collectively are, importing huge numbers to boost demand and kick the can. And how incredibly desperate the world is to come to Australia that outwardly looks like a great success – when in truth it’s a one trick pony teetering on bankruptcy and quickly crowding out its major cities. Eye-opening chat for a new (and highly skilled) Nepalese who has worked in Europe as a senior telco manager. He though the sun shone out of Australia’s arse before he got here and now sees how hideously expensive the place is, how idiotic the policies and politics, how crazy house prices and debt are and how fragile the environment. The good news is he’s been transferred from Turkey. It was here or Sweden. Hasn’t experienced a Melbourne summer yet so his happy comment about coming here for better weather fell flat when I told him it often enough got north of 40 degrees.

    • Mortgage Protection Insurance protects the borrower (in particular circumstances), Lenders Mortgage Insurance protects the lender. Not sure which he had, but you seem to have conflated the two.

    • Forrest GumpMEMBER

      Yes. I too have a similar story. I use Uber frequently and often have a similar conversation with the every driver. Its a game I like to play.
      By the end of the 15 minute journey when I hop out at the airport, I can see on the drivers face he has the holy Shit moment when the penny drops.

      There are soo many people out there that don’t understand what an I/O only loan is. Even a bigger amount of people that tell me they are Property Investors whom do not understand what negative gearing is, capital gains tax, depreciation are.

      I had a loud mouthed work college that gloated that he was getting back $35,000 as a tax refund from his 7 investment properties.
      I tried to explain to him that his actual losses only negative gear his taxable income. He doesn’t actually get all his losses back. I explained to him his actual losses were probably around $70,000, of which after reducing your taxable income, you get a return of $35K. He was so angry at me and refused to believe that he was not recouping his losses.

      Some people can’t handle the truth.

      • As your namesake said:
        “Stupid is as stupid does”

        All these folk with property goggles on (just as beer goggles make the target of one’s lust more attractive in an exponential way with every drink) are about to discover the gut churning, head throbbing equivalent of a financial hangover post-bender.

      • SoMPLSBoyMEMBER

        “Still a man hears what he wants to hear
        And disregards the rest”
        Lie la lie, lie la la la lie lie
        Lie la lie, lie la la la la lie la la lie

      • UrbanWastelandMEMBER

        I did this too for a while. Then my rating started to drop. Better to cue up a Reusa – it’s what it was designed for.

    • Responding to your comment a bit further down: a former American (a Wall St colleague of mine who is not short of a buck or two) dropped me a line a week or so back as he is currently doing a short trip round Australia with his family …. and he was blown away by what stuff costs here — he reckons anywhere in straya makes NY and London look cheap.

      It is true though – the cost of living here is nuts.

      • The first time I went to London I was prepared to get fisted for the cost of things. Then when I got there I thought to myself, hmm, it’s the same or cheaper to home. That was back in 2008ish. The cost of things here seems like they have doubled since then.

    • Why are you guys so surprised? This bubble wouldn’t last two decades if there are not so many dumb and greedy people here. They are The Market.

    • My “young” (mid-twenties) barber and I were having a house-chat recently, whilst I was having my overdue haircut.

      We got talking about Sydney (we were both ex-Sydney, now in the Hunter Valley), and houses.

      Told him that Sydney was now down 6% on average…flat out denied it, “Nah, nup, haven’t heard that, don’t believe you”. I laughed, “Things can go down, you know…”. “Nah, nup,” he replied, “I can’t accept it – they’ve always gone up!”.

      Poor youngings (I’m 37) have never seen anything else – they really, really do “believe”. Fortunately, he hasn’t bought yet in the Hunter but is thinking about what to do -“House or farm?”, he was asking.

      From a debt-servitude and capital risk point of view, it’s beside the point.

      I let him know that I didn’t know what he should do, but that assured him the real data said Sydney was down…

      Interesting real life insight…

      My 2c

    • where’s the limo ride story by mdsee? i can’t see it now? only asking because i enjoyed reading it too much!!

    • They are talking about their repayments – primary PLUS INTEREST.

      20 year loan at 5% on $550k is $3600 / month

      Factor in everything else – its roughly close.

      The comment was talking about people in the area – so homes were going for $790k – thats a $5k / month repayment.

      Whats your point ?

      • The total debt was $670k…3rd tier lender charging 6% = $4k

        All on a Limo driver’s income, with a Merc doing 160,000km a year. So loads of maintenance costs plus $80 a day on petrol out of an already meagre cash flow to pay $4k a month and survive.

        Good luck with that.

  5. A couple asked him to sell a two-bedroom weatherboard home in Veron Street in Wentworthville, 27 kilometres west of Sydney, for $950,000 when it was only worth about between $820,000 and $830,000.

    Only worth 820K eh.

  6. Also this is a little harsh!

    Western Sydney is basically a low income ghetto

    .

    You are forgetting the vibrancy!

    • #FarkinRacialist! That is… 😛
      Having been to Western Sydney (out Fairfield way) it really is a dump. I do not understand $800k asking prices for Asbestos Fibro shacks in a place that is hotter than hell’s arse in summer.

      It’s barren and ugly… you couldn’t pay me to live there frankly. I’d much rather move along the NSW coast than go far West.

      Inner west = good
      Far west of Sydney = dump.
      Really far west = Blue mountains (beautiful)
      Really really far west = Bathurst = Pristine…

      • I bought a decent size house in Cambridge park( near Penrith) in 1997 for 94,000. Sold it in 2002 for 140,000( and missed out because of that on first home owners grants so I made nothing!) these numbers for garbage are what you can buy great properties in most of the world. I think even the bears are underestimating the carnage to come

      • @Jspitzer

        See my post above – you can buy PLENTY of wooden fibro bulldoze jobs all over New York – 5-10km from the city on a decent block of land for $150k

        Check out Zillow.

        Its an absolute circus – and yeah people are in for a shock.

        .

      • Taxes on land in the US are a lot higher though generally; not sure about NY however as every state runs differently. Holding land costs money there and therefore isn’t capitalised into the price. Remember reading about people that wouldn’t buy a house for peanuts because the land tax was still $10k+ a year in some states.

      • My parent’s generation grew up in basically tin sheds out west. No aircon, and only the harsh Australian climate to keep them company. I’m sure there’ll be people (probably from outside our borders originally) who will tolerate these places knowing that their kids won’t have to.

    • Don’t forget folks; New York is the center of the world in every possible way – and you can get there a pretty decent house 10k from Manhattan for a small fraction of some western suburbs of Sydney shithole.
      Sell while you’re still in front !!!

      • Too right. Whilst housing in Manhattan costs even more than housing in the Sydney CBD does, you only have to go an hour outside the city, maybe not even that, to find house prices built for residents, not investors — low prices that someone on a reasonable income can pay off, and a small increase in value year on year, so that you make your money on a house by putting money into it as a mandatory savings plan, NOT by “playing the property market” and looking for capital gains.

  7. How could it NOT (start to) end this way, or worse?

    Oh, that’s right, no one could see this coming.

  8. I think it’s mostly high income people buying lots of relatively cheaper investment properties out west, not the local population out west

  9. So these clowns in Wentworthville expect their 2 beddie weatherboard shack to have appreciated by $160K or 20% over 2 years because reasons, when the market has been falling for 12 months.

    And 50% of the RE dudes sales are being forced for the same reason. Jeez, there are some rude shocks coming for a bunch of people. This is gonna be epic.

    I wonder how the Spring selling season which starts in a couple of weeks is gonna pan out?

      • HadronCollision

        To be fair, AC can stay in situ for a long long time.
        Our house has 40 yo Hardi on it in very good repair. Beyond application of some latex, Sika and repainting it, it’s fine for a lot longer.
        We are slowly removing it as we reno the house – deck? AC cladding off and Colourbond. Bathroom/Dunny, same deal.

        Ain’t no thang.

        (But then our LVY and DTI are low with highish income so we can float the cash to do it)

    • So, so many people have justified paying prices that they themselves think are outrageous burdens, because they think that the hyper-inflation makes it OK in the long run…

      I’m still so-so in real terms about a crash – but if things don’t start going bonkers again, there are so, so many families that will be screwed by even stagnant prices….they NEED things to keep going up stupidly, or else there medium to long-term plans are borked….

      • Why are you “so-so” about a crash, mate? From reading the comments it seems everyone is all but certain things are going to crash badly. Is there any reason you don’t think this will happen?

  10. How can you have a debt of $820,000 to $830,000 on a house you bought for $790,000?

    How can any couple living in a two bedroom house in Wentworthville pay $2500 – $3000 per month in loan repayments? I’m going to guess that these people have not got high incomes.

    How can a two bedroom weatherboard house in Wentworthville be worth any more than $100,000?

    • KABOOM asked “How can you have a debt of $820,000 to $830,000 on a house you bought for $790,000?”

      Stamp duty, equity withdrawal for the Audi / holiday / plastic surgery / new wardrobe / new furniture / etc. you had to have

  11. And the funniest thing is, that with these IO loans, the poor buggers haven’t paid a cent of the principal – they have effectively been renting (but at around 4% instead of around 2% that a renter would’ve paid) and bonus negative equity and tens of thousands relinquished via stamp duty to the good old state government. Deary me. Hilarious.

    • Don’t forget divorce costs! They can divide up negative equity and share it equally… because you know you have to support your dependent partners lifestyle expectations after divorce and I think that means both people get to share the same misery in this case.

  12. Ronin8317MEMBER

    Veron street is zoned R4, buying the property is all about selling to developers to build apartments. There are so much unsold stock developers have stopped buying, so prices have crashed. If my guess is correct, that property mentioned is on a duplex title with no stand alone redevelopment potential.

    • Bingo.

      Same as in Melbourne.

      Travel down Station St Fairfield – or along Separation St, Darebin Road, etc St Georges Rd, High St etc, etc and literally – every single house which comes up for sale has / was being bought by developers.

      I was living in one which was bought almost 3 years ago now and STILL nothing has happened. They are all just cruising around buying, buying, buying getting ready to develop – the time lag is at LEAST two years.

      My house was an absolute dump – $1.6 Million.

      There is just no possibility these guys will recoup that money – absolutely no chance.

      Imagine trying to sell now.

      • This key link between the apartment building boom and the recent house price boom hasn’t been explored enough. I think the 2 of you are spot on. The developers were buying up houses to land bank and redevelop in to untits. The mum and dad speculators joined in to buy the houses now so that they can sell it to the developers later, which bid up the prices even further.
        Now there’s an over supply of units….is it surprising to see what’s happening to house prices as a consequence.

      • 100% lots of houses with big blocks. Just look next door and there is 4 townhouses on the same block. This is what has driven the prices of mediocre houses on big blocks through the roof!

        If that segment of buyers falls over and it looks like it has we will be back at $200k for 1/4 acre blocks soon enough haha.

      • That’s what I’ve seen in my suburb – postcode 3012 – as well.
        Old folk die or people move on and sell up. New owners come in the first weekend after settlement to see it for the first time (or something) parking out front in expensive car &c and then nothing happens for months or more likely years, and the house slowly falls apart.

        Been in my current rental for two years, and seen it five times in houses in the immediate surroundings.

        My go to theory is they’re trying to beat heritage by letting it fall down.

        They kicked out some renters on the corner and a sign went up spruiking 4 townhouses coming in 2020 but I’m not especially concerned that anything will actually happen.

  13. was the number they need to pay back the $200,000 they borrowed from family to buy the home as well as repay their interest-only loan,” he said

    Not really the point of the story, but am I missing something here? Assuming the 200k was used as a deposit they would have a mortgage of 590k. How can they now require $950k to clear their debts?

    • – I assume that these people also spent money to repair a bunch of things, installed a new kitchen and/or put in a new bathroom. Something along those lines. And all with borrowed money.

  14. freddy lasthope

    “I asked them where they got that number from and they said that was the number they need to pay back the $200,000 they borrowed from family to buy the home as well as repay their interest-only loan,”

    I cant get past this. People dont really think the world works that way? Do they?

  15. Interesting how Reusa doesn’t have some blinding positive insight to contribute here to calm all these people who are being slowly toasted. His intellectual insight is little more than LOLOLOLOL and “Yeah nah” most of the time.

  16. Is this the most biggest, craziest property bubble in the history of the world?

    I bet the average 20-something doesn’t even realize it’s a huge bubble. It’s like being in a madhouse your whole life. Crazy is just normal and normal is something you have no experience of.

    • True enough. If you’re under 35 you’ve never really been aware of SYD/MEL prices in anything other than a bubble.

    • I’ve often thought about this also. I think you just sort of get used to the cost of housing in this country being what it is. You don’t really see it if you haven’t travelled and lived in other places. Even myself living here again since 2013, I keep having to remind myself that valuations make no sense right now.

      The media keep pumping it like it’s normal and that prices make sense etc.. there is all kinds of justifications for current price setting out there, that if you don’t have a critical mind could be easy to absorb and take onboard.

      However with all this news in the last 2 months, I’m now more sure than ever that it will be bad when it crashes, but it will still be a shock to many. Since they assume property doubles every 7 years. Nobody really questions these things. Not even my older and wiser Aunt who has been on this earth some 50+ years.

      My own mum is doubtful we’ll see a 40-50% correction, she thinks housing won’t return to being affordable for most families. Not because she doesn’t want it to, but she just thinks it’s the way things are now. She thinks 20-30% maybe and in places of Melbourne we’re already there from peak.

      It really comes back to our banks and their willingness to over-lend to every Jack and Jill. If we capped loan to income ratios to say 3-4 median wage it wouldn’t have happened. But that would prevent the banks making profit.

      Funny enough i’m still looking at properties, but I’m not desperate to get in. Just looking what is out there and how far money goes now. I can see quite drastic changes in price setting in many suburbs. Some still very unrealistic prices, but I just ignore those properties.

      • If it does correct significantly and we get a big shock , I’m not sure most will be eager to see the bubble pumped back up. And many of the people now jumping on the bandwagon of a “sure thing” will be less eager to take the same risks post crash. I also think there might be political will to make some significant changes to the tax system. But such changes would, I think, only be realistic post some form of crash. While ever so many people are heavily invested and still haven’t lost hope the can will be kicked as far as it can be and people will reject anything that will impact negatively on their most significant investment.

        While ever the belief remains to most people that “you too can get rich from property investment” there won’t be any political change of any significance.

  17. There will be an impact but not what you think.

    It will only accelerate the acquisition of modest Australian housing into foreign run and occupied migrant enclaves.
    The underlying nutrient of the Sydney & Melbourne housing price bubble is still there. Growing.
    2.7 million migrant guestworkers who rent.
    2.2 million TR people & 440,000 illegally working tourists. 16 years of our annual ‘official’ PR intake.

    1.5 million are in Sydney. (1.3 million TR & 200k illegally working tourists, 1 in every 4 people.
    All occupying housing, long stay, repeat stay, multiple stay, very long stay.
    They are mostly poor, unskilled, third world, in debt to an foreign agent procurer, working illegally, live week to week, fake ID, cash in hand, pretext course or visa.

    17,083 a month ‘net’ new / mostly TR & Tourist Visa Working Illegals who rent in ‘private shared accommodation’ flood into Sydney Melbourne less outflow of Australians static or moving out. (Check the Sydney & Melbourne pop stats, all most net new migrant inflow from overseas or internal).
    17,083 a month @ 6 per dwelling is 2,800 additional dwellings needed each month.
    Or 34,000 modest low income rentable dwellings each year for migrants (6 per dwelling) or 68,000 for normal Australian occupancy also needing housing (3 per dwelling). Many x the actual supply.

    Where do people think these 2.7 million migrant guestworkers live & how?
    And what is the trend & sad predictable result ?

    They live in vast migrant enclaves in both Sydney and Melbourne in an 86% plus concentration.
    These enclaves now stretch from the Sydney CBD to the south & right out to the far western suburbs.
    In invariably foreign or proxy owned old modest established units & houses in at least twice the occupancy ratio of normal Australian usage (6 per dwelling v 3 average).
    They almost all rent because they are poor, unskilled, in debt, only here to work illegally, pay back their foreign agent procurer, send back remittances, get a sponsor, get a bridging protection visa, stay on in visa churn, organise a fake spousal, or otherwise secure a PR to bring the rest in.

    So who will ‘get smashed’ in western Sydney ? Australian & new Australian PR owner/occupiers or investors with normal legal tenant occupancy.
    These Australian born & ‘aspiring’ new migrants in Australian home ownership – caught in a foreign syndicate & proxy and then onshore foreign owner dirty money migrant subletting house price bubble.

    The people who will benefit ?
    The foreign syndicates and their proxies onshore.
    They will wait until prices reduce, the banks spooked, regulatory controls reduced, ‘assistance provided by a government desperate to stop the house price bubble imploding etc – and the massive backlog of both offshore and now onshore dirty money will further accelerate in acquisition and conversion of low end modest Australian residental property into migrant only high density cash in hand subletting.
    It will be the Chinese or other foreign syndicates and their proxies queuing up at the foreclosures and forced sales to get their proxy buy in cash with laundered money or sourced from their massive onshore criminal run underground & illegal activities.

    Because the underlying nutrient is growing – 1 in 4 people in Sydney, who are mostly (numerous facts provided in this forum before) third world unskilled and illegally working & housed migrant guestworkers on a Temporary or Visitor & Tourist Visas.

    Compare the pair especially the cash flow, and who is ‘stressed’ in property debt & who is not.

    🔹$750,000 old 2 bed fibro house in Granville – busy road & grimy area. Borrowed 80% plus SD etc $650,000.
    Australian young family – father, mother & young child pay $500 a week mortgage or 40% of the dad’s $1,250 average income – their maximum limit in a ‘normal occupancy.
    ➡️ $26,000 a year & exposed in any interest rate increase, capital loss & negative equity in a price fall.

    The same type of dwelling next door is bought by a foreign syndicate for $750,000 laundering in money via a proxy. Now the foreign syndicate discounts the laundered money (Australia safe haven via a pricey but also wants 6% return, and that’s easily done.
    Let by a migrant friendly ‘agent’ to a lead tenant, then sublet & occupied by 6 foreign students who pay $190 or only 20% of their legal & illegal averaged income of $49,000 for a room share. It’s a small old ugly house in
    Granville. The council doesn’t care, this is what Malcom & Lucy mean by ‘higher suburban density’.
    That is $1,140 a week income, or $59,280 a year, but only $500 a week is declared ($26,000 a year) and then Negative Gearing claimed by the onshore or PR proxy – often living in, but not on the lease as the ‘Loss’. The other $640 a week is collected as cash no tax ($33,280 a year).
    ➡️$59,280 a year (8%) plus no tax. More than the double income, no tax paid, plus Negative Gearing claimed on the ‘loss’ on false rent declared.
    The syndicate gets back 8% on dirty money and the proxy gets NG plus a cut & somewhere to live.
    It’s a cash flow model totally immune to price falls or interest rate increases.
    Prices fall ? – great, buy more.
    Interest rates up, housing stress ? Buy more.
    Investor new unit price fall – buy more.

    In fact the only 2 things that can impact their model is less poor unskilled migrants (needing to room share) or a city wide housing audit of illegal use & ATO audit of undeclared rental income. See below.

    The Sydney / Melbourne TR / TVWI Housing gold mine.

    We have 2.2 million Temporary Visa holders (July 2018). 80% unskilled & third world origin (incl 30% NZ SCV non NZ born). 93% rent in ‘private shared accommodation, 86% are in Sydney or Melbourne.

    So 1.75 million ‘rent’ in Sydney or Melbourne, occupying / 6 per dwelling some 291,000 dwellings. (ABS)
    Paying some $14.5 billion in rent, but only $8 billion declared. (Legal v illegal occupancy ratio).

    🔻440,000 illegally working Tourist Visitors (TVWI), 5% of the 8.8 million tourist arrivals work illegally. (the legal ones also chew up private rental accommodation, but putting that aside). 410,000 tourist illegals are in Sydney or Melbourne consuming 70,000 dwellings (6 per dwelling) Paying some $3.4 billion in rent of which only a fraction at best $1 billion could be declared -/- these are illegal workers with fake Id in visa breach, not on any lease.
    And another 55,000 overstayers- same.

    So in just Sydney & Melbourne – the PR, TR & TVWI consume at least 570,000 ex Australian modest dwellings as renters.
    Pay some $25 billion in rent, but only $15 billion declared as legal use, the rest is illegal usage & illegal occupants.

    $10 billion missing – $7 billion alone in the in the ubiquitous high density sublet cash in hand TR ‘foreign student’ or ‘sponsored guestworker’ or ‘tourist visitor’ room & bunk share’

    We need an Australian Housing & ATO Audit.

    🔹All Temporary & Tourist Visa holders to declare their location, address, activities, sources of income, funds & their rent paid & to who. A non citizen migrant Identity & tracking system is long overdue.

    🔹Details matched to owner & leasing agent tenant occupancy details including visitors and rent paid.
    Then cross checked, unit by unit, building by building, house by house and suburb, with authorities having full powers to inspect, verify & track occupancy.

    🔹High profile ATO investigations in the recovery of undeclared rent income – tens of billions yearly, plus back payment, fines & jail for these criminals.

    Foreign syndicate & proxy acquisition of old modest established Australian property would stop overnight.

    Australian rents & house prices would normalise. Most of the foreign criminal syndicates will pull the pin, sell up & exit. Putting hundreds of thousands of modest old established Australian units & houses back into the market.

    Australian born owner occupiers of modest housing (under $800k ?) trapped into mortgage indebtedness & negative equity caused by the artificial housing value bubble of foreign money laundering & migrant cash in hand subletting racket should be compensated out of this ATO recovery. There isn’t many….

    At least 1.5 million of the 2.7 million migrant TR & TVWI would be found to be living illegally in breach of Australian housing fire & safety occupancy standards & colluding to defraud.

    And the identity & verification checks will show at least 1.5 million or more TR & TVW migrants of the 2.7 million onshore are in visa breach and have illegal sources of income.
    And all should be exited.

    This is the underlying nutrient of both Sydney & Melbourne’s crazy house price bubble.
    1 in 4 in Sydney a TR or Visitor Tourist working illegally.
    No one built housing for them.
    Why does ‘Sydney & Melbourne’ have a bubble and no other city does despite the same low interest rates, negative gearing etc and all the other factors ?
    The difference is 86% concentration of these 2.7 million migrant guestworkers in Sydney and Melbourne.
    Thats the underlying nutrient & nothing will be ‘fixed’ or ‘made normal again’ until that’s addressed.