Aussie property investors face towering supply glut

Finance Brokers Association of Australia managing director, Peter White, has warned that Australia’s property market faces a gigantic supply glut as the tapering of emergency income support and mortgage repayment holidays causes a wave of forced sales:

“The reality is that despite government assistance, some people may not see secure employment or their business recovering in the near future, and the recommencement of mortgage payments will be a burden they cannot bear”…

“There is no advantage in holding off and hoping, when we don’t know what the market will likely be after the stimulus payments stop”…

“There may be a glut of property suddenly on the market.”

Digital Finance Analytics’ (DFA) latest mortgage stress data showed that 1.47 million owner occupied mortgage holders are experiencing financial stress, equating to 39.1% of borrowing households:

The situation is even worse for property investors, with more than half of those with a mortgage (51.3%) “underwater from a cash-flow perspective” and “caught in the financial crisis headlights”, according to DFA.

In addition to potential forced sales, Australia’s army of negatively geared property investors are also facing ballooning supply from the massive pipeline of apartments still under construction, especially across Sydney and Melbourne:

With immigration collapsing, vacancy rates swelled and rents sunk over the June quarter across investor hotspots such central Sydney and Melbourne, according to CoreLogic:

Dwelling prices are of course also falling, meaning property investors across Australia’s two major cities are facing twin busts – falling income (rents) and falling equity (values).

Given Australia’s international border is likely to remain closed for the foreseeable future, thus meaning minimal immigration, both prices and rents should also continue to fall.

How long will investors, many of whom are suffering from job/income losses, hold onto loss-making properties when the prospects for capital growth are so slim?

Australia’s property market faces the prospect of a feedback loop developing as falling prices and rents causes stressed property investors to sell, in turn driving further price declines and forced sales.

Highly geared property investors in Sydney and Melbourne should consider selling before the market gets even worse.

Leith van Onselen

Comments

  1. Hill Billy 55MEMBER

    Amazing here in Queensland. The last couple of weeks has seen 850 or so houses sold each week, which is normally associated with some strong growth. This has been reflected in the coreLOLgic series over the last few days with positive readings in 3 out of the past 4 days. Are we seeing imports from down south? Still see a lot of For Sale signs, even though it is reported that there are no properties for sale. The lies seem to be winning at the moment. How long for?

    • Robert Johnson

      Baby Boomers sell their ho-hum 4bedroom family home in Melbourne for $1.2m and buy a flash 2/3 bedroom new place with a pool for $800k. The extra cash goes into Super or to help their kids buy their own place.

    • How are Vics getting in there?

      I reckon it’s a real possibility post lockdown, but with the average household being in debt to the eyeballs, how will they do it? Who are they offloading their Melbourne digs to?

      Are the Chinese still coming in via the back door?

    • DominicMEMBER

      There’s been a heap of interstate migration – a trend which began a few years back and one that has intensified every year since.

      I don’t think there are too many wealthy people moving up — which is why you’re seeing the higher end sagging. Also, the bulk of vehicles with VIC and NSW plates are a bit shyte, to be honest. A handful of flash wheels but not many. The cashed-up mob have careers down south which are not that portable.

  2. Bitter Looser Renter

    Went for a holiday weekend in Melbourne early 2019. Stayed in a hotel just up from Docklands. Only wh!te face in the hotel. All from mainland PRC by the looks, and not short of ill gotten money by the looks.

    Thought it was a bit odd but went about my business. Didn’t take me long to spot the Chinese language RE agency next door and realise the well groomed staff in suits shuffling hotel guests in and out of minibuses were taking them round for their RE buying tours. A few brochures being scanned in the evening in the lobby and it was pretty clear what the deal was. Not an FIRB application form in sight though … sigh

    Was a bit annoyed at the whole thing then.

    Schadenfreude to the max now though.

  3. All those inner city dogboxes are worthless. No rent and ransom high strata. It’s a liability. It will no longer be them not wanting to give it away, no one would want it even if they give it away.

    • ErmingtonPlumbingMEMBER

      And after decades of cheap to own private Certifiers, foreign sub contractors and the system of self certification in Multi story construction that “ransom high strata” is just going to get more and more extreme over the coming years.
      You have to be a straight up idiot to buy anything built in the last 10 years.

      • It’s all cons.
        When you buy them new they are shiny, but you pay a Premium for them. As they age and deteriorate maintenance costs increase and their attractiveness diminishes, because more similar stock appears on the market which is nicer.

        Then we have structural problems, broken lifts, other buildings blocking your nice view and the place is becoming more or a ghetto because of Air BnB investors buying up next door and it’s trashed by Dandenong’s best ethnic groups.

        Yep, I can’t see anyone wanting 1 unless it’s to rent as an Air BnB property. But without travel and Jimmies I don’t know when it will actually provide a yield.

        Game over by my assessment.

  4. Forced sales are result of, not cause of, property bubble crash
    During GFC number of homes for sale in USA halved relative to 2005 but demand fell so much that large reduction on supply side didn’t matter
    In USA they have much better measure of market condition called monthly supply of houses

    “The months’ supply is the ratio of houses for sale to houses sold. This statistic provides an indication of the size of the for-sale inventory in relation to the number of houses currently being sold. The months’ supply indicates how long the current for-sale inventory would last given the current sales rate if no additional new houses were built.”

  5. “How long will investors, many of whom are suffering from job/income losses, hold onto loss-making properties when the prospects for capital growth are so slim?”
    They dont see it this way though. They think that the “govt will not allow that to happen”.
    Although, the last display of the truth from the govt who mandated that landlords have to suck up reduced rent might give them pause for thought.. could it be possible that the govt dont care for the mum and dads but only the developer kind?

    • In a way they are not allowing it to happen through the RBA .
      Pushing the dollar higher will keep funding costs down and interest rates low. It will happen anyway but on a smaller scale.

        • I am not a banker but AFAIK a significant portion of our lending market needs to be financed offshore. Hence a lower dollar increases funding costs which could potentially result in higher interest rates being forced on mortgage holders. I could be wrong.

          • I think it’s not that they NEED to be financed offshore, it’s simply been cheaper to do so. (Lower IRs overseas). If that changes they could just stick to onshore.

  6. If there is a massive drop in immigration and if there is also a large drop in house prices will it finally be acknowledged that high immigration has been a factor in high house prices?

  7. The “for lease” signs have not diminished around Sydney’s inner city ( read student and young professional rental circle) as properties remain stubbornly vacant. Now, the “for sale” signs are mushrooming as the removal vans drive away. I had an invitation to two “off market” inspections in Sydney’s inner west on Saturday. These “off markets” are are sure sign that owners are testing the waters. With Spring just a month away, look out for the avalanche of inner city housing stock hitting the market.

    • SoMPLSBoyMEMBER

      And all over MEL ( including the posh eastern suburbs) there’ s been an explosion of Harvey Norman ‘bargain bin’ piles of recently purchased goods on the nature strips.
      If it’s not going in the Budget cube trucks, it suggests the people are moving far far away.

  8. Bitter Looser Renter

    Meanwhile on gumtree there is a fresh Tsunami of ads by New Australians with ‘change in circumstances’ who ‘just need their deposit back’ and hence are offering their due to settle in August 2020 blocks of land in Tarneit for nomination sale.

Leave a reply

You must be logged in to post a comment. Log in now