CBA targeting property investors to sell

According to the Australian Prudential Regulatory Authority (APRA), around 170,000 Australian property investors have deferred repayments on their mortgages due to financial pressures arising from COVID-19. This is among the 500,000 total borrowers that have deferred repayments on $195 billion worth of mortgages, according to APRA.

Digital Finance Analytics’ mortgage stress data also shows that one quarter of property investors are ‘stressed’, meaning they are suffering from either negative cash flow or extended vacancy rates:

With the federal government’s emergency income support – JobKeeper and the JobSeeker supplement – scheduled to wind down from late September, the CBA is looking to force highly stressed mortgage holders to sell their properties:

CBA has been conducting check-ins with 135,000 borrowers with deferred mortgage repayments and remains willing to extend loan deferrals, on a case-by-case basis, beyond the March expiry of the prudential regulator’s leniency [CBA group executive of retail Angus Sullivan said].

But a subset of borrowers will require conversations about “alternative solution paths”…

“If you had a lot of debt from [buying at the peak of the market] and you were in a difficult position from an employment perspective, [downsizing] would be exactly the type of solution that would be worth having a discussion about”…

With property investors representing 28 per cent of its deferred loans, Mr Sullivan said those with multiple investment properties who are “in a position of real [financial] strain”, could be told that an extended deferral “might not be the best solution”.

The bank’s message could be: “The property market is holding up pretty well, you may want to make the decision to liquidate one of your investment properties and put yourself on a stronger footing.”

Assuming the same types of conversations take place across the banking system, the property market could face a wave of forced sales, placing additional downward pressure on property prices.

The risk is obviously greatest for highly leveraged negatively geared landlords experiencing both falling prices and rents. For them, the temptation will be to cut their losses and sell.

Leith van Onselen

Comments

  1. Achilles Tskakis

    The RBA will have to have a word with the CBA and tell them to stop this foolish idea. It could cause house prices to drop.

    • happy valleyMEMBER

      Absolutely – any price fall would be unforgivable for RBA happy clappy specufestor IP portfolios?

    • It’s fine so long as there’s no reporting on data, just the odd good news story about somebody who sold “way above reserve” and well above what they paid in 1986.

    • Looks good. But I’m confused, I thought the clearance rate for Melbourne was 90% last few weekends.

  2. But who is going to buy them? The Chinese are stalling/unable to. Are other Investors are going to buy them? (prob not a good idea). I hope that families would buy them, buy they might then face mortgage stress too. doesn’t leave many takers does it?

    • SnappedUpSavvyMEMBER

      it explains the suicidal and psychotic determination to bring in foreign locusts… errr students

      • Exactly, the rest of us are tapped out so the ‘system’ needs a consant influx of new bodies to lend money to.
        It either grows or dies. There is no inbetween.

        • Jumping jack flash

          students won’t borrow the money themselves, maybe their parents could buy them a house to live in while they study, but they can certainly be used to facilitate wage theft to give business owners the extra push over the eligibility bar for taking on larger amounts of debt

    • I would buy having cash, if the property suited and was near my family. Children. But not a heap of s##t architect interfered with rubbish with endangered timber and dreadful design and airless built to the back fence. Heaps and heaps of those around. I loathe renting and been thru hell where I am near the water in albert Park,, mice plague, built badly in 2007 and then 2 sewage volcanoes hru my place and block, and landlord wanting full rent. Trapped by covid.

        • 26 May, was showering, sewerage volcano out of shower drain,No lumps, blocked by drain cover I guess. Loaded bathroom, flooded carpet hallway, secretly flooded underlay in bedroom. 6 days later the owner swine emoted it. I mean only th hallway carpet from which I had tracked juices throughout the unit.
          All due to the ingest first floor unit putting kitchen paper down the probably bad pluming, No problem fo hem in anyway.
          9 July flood but I was on computer and didn’t know until saw it filled bathroom hallway and out the unit and accompanied b. flow from opposite unit, down the wide stairway. To front door. It went into bedroom doorway, when tested 2 days later had flood bedroom and gone thru the ceiling of uni t. Below. The first finished the mouse plague in Mills street. What has followed with vile behaviour, iinvasion of workers, plumbers, assessor bullying me was woes.

          • This is especially common in the lower rise apartments. The cause is most commonly blocked drains from flushable toilet wipes. The only way around it is to install maserators in the sewage pipework.

    • I still see plenty of Chyaneese at open homes on Sydney’s upper north shore. Common as cockroaches in Newtown. Not many locals at open homes though.

  3. The banks will not slit their throats with a wave of forced selling.
    To the extent the banks can control things they will seek to avoid such an outcome.

    • Yeah, no disagreement there. The only contention comes in “to the extent banks can control” part of that sentence.
      What is the extent to which this can be controlled and can it?

      • APRA, govt, RBA will help control the outcome but the real risk is if low-no immigration continues for long enough. This explains the mad panic to open borders and bring international students back,

    • The issues for the banks is do you just sit there while everyone else rushes for the exits. You already heard from NAB. Westpac starting hinting the same idea. Now its CBA.

      • They are all in it together. No one will rush for the exits because all the banks stand or fall together.

        Banks in this country are an oligopoly with substantial control over the arms of government (eg corrupt federal court judges…)

        • Your half right. They stand together well enough in good times but they sure don’t fall together.

  4. Spike coming for Google search terms ‘cross-collateralized’ and ‘any/all monies clause’?
    Going to be some very disappointed punters out there. When they go back to the conference room at the abandoned budget family resort/conference centre to find the seminar guy that said it was all a good idea, an old receptionist lady will draw down the shutter- ‘Ain’t no wealth seminar and there never was!’

  5. This is going to be really low quality stock that was way overpriced when it was purchased. In Sydney we’re talking less than 5 years old defect ridden dogboxes in the Valley of the Shadow of Indian Granny Death Stares™ with multiple identical units for sale in a given block, and annual strata levies exceeding $25,000 per annum.

    Any fool who wanted to buy there already has. People who have been sitting this out and are cashed up will be scouting north and east.

    This stuff is destined for ‘off market’ rolled up sales in a line to PE/similar vultures at 40 cents in the dollar. Even then you would want to have wheelbarrow size cajones, but there’s a market for any risk as long as the pricing is ‘done correctly’, as they say.

      • darklydrawlMEMBER

        In those tower blocks that level of HOA / Strata levies are normal and ongoing (with the occasional ‘special assessment’ top up for unexpected big problems).

        One issue is all those lovely amenities that look great on the sales brochure are expensive to upkeep. Lift maintenance alone for those tower blocks is a killer. Let alone keeping the indoor pools, gyms, rooftop garden with BBQ area looking clean and functional.

      • Arthur Schopenhauer

        Lifts are expensive to maintain, especially the cheap ones.

        Window washing is not cheap either.

        Hi-rise apartments cost around twice the $ per square meter to build, compared with an outer suburban ‘luxury’ MacMansion. And the maintenance costs are far, far in excess of a regular house. It suits everyone other than the eventual owner. Straya.

      • What they said.

        Especially the cheaper (up front) lifts with the back loaded mandatory maintenance fees, way worse than the scams the car companies run on ‘genuine’ spare parts.

        You need to be, and it will come to pass, a large corporate owner with in house trades including HVAC/Lifts/Plumbing skills to make a possible go of it.

        As with all things, already happened in the US, outcome was horrendous for the tenants:

        https://www.theatlantic.com/technology/archive/2019/02/single-family-landlords-wall-street/582394/

    • Achilles Tskakis

      cos it’s never going to – Aussie property will never crash.
      The whole system is rigged so it can’t.

      • Agreed.

        Logic, property and the government do not mix well. Logically, the property market should have started to reset after the Banking royal commission – and it did, until Scomos miracle election and the reopening of the banking credit taps.
        Covid19 should have also started the reset but it hasn’t.

        It ain’t never gonna happen, the gov will always find a way to keep the ponzi going.

    • darklydrawlMEMBER

      Because everything is currently suspended with the hope the economy will recover sufficiently quickly before the banks run out of patience and options. I give it 6 or so months – April / May 2021 is my next check point on this.

      • I’m thinking the end of gov income support too – job keeper/elevated job seeker.

        From the ATO website “an extension of the program to 28 March 2021”

        So yes, April May will be when the pressure really hits homes. We may have a vaccine or not by then, either way Scotty and co will open everything up again regardless of the consequences – students, tourists, 7-11 visa’s, the lot.

  6. SoMPLSBoyMEMBER

    Am impressed by the show of warmth and compassion given to the beseiged property borrowers!
    Over at margin loans in shares, if the collateral drops below the loan, one gets a frantic phone call and not much time to bail the sinking vessel with a capital injection and if you don’t, they close you out-crystalizing immediately the losses.
    That a margin call could happen is enough to keep many away from such terror-inducing risk; yet in property land, it is rarely a significant and adequately disclosed risk-another reason ‘we’ are so indebted to housing.
    Here’s a hankie!

  7. The bank’s message could be: “The property market is holding up pretty well, you may want to make the decision to liquidate one of your investment properties and put yourself on a stronger footing.”

    Cheeky Fekkers asking $120k more than they bought it for 2 years ago where I’m looking.

  8. SchillersMEMBER

    So 2,891,077 own rental properties. That’s a lot of voters with a personal vested interest in property and property prices. All of them wanting to ensure their “investment” does not fall in value.
    By voting for parties and politicians that best serve their interest.
    ALP…take note.

  9. Highly mortgaged “stressed sellers” – pfffft, they dont need to sell because of low interest rates and loan holidays. Its the baby boomers that cannot get an Age Pension, and are taking it in the “A” from low interest rates, reduced rent, lower bank dividends. These are the people that are getting ready to sell.

    • Is that advertiser really asking for someone to pay $77k to take over the contract to pay the full sticker price of the apartment when it’s due?

      Amazing that someone thought it was worthwhile spending the time to post the ad.

      • they are not the only ones. pages of deluded folk who reckon they can get their whole deposit back and that there is a bigger sucker out there who will facilitate that … crazy.

    • Bit…..”2021 just need my 10% deposit back $77k currently developer is selling the same size apartment for $823k .”

  10. Martin North is great. I regularly listen to him. I could be wrong but there is a flaw in his “stressed calculation”. It is based on cash-in-cash-out basis. I.e. (cash-out) – (Cash-in) = – ve ==> you are stressed. But remember, “negative gearing” is what ppl are playing for. if you negative gearing loss (aka cash-out – cash-in) is pittance like -$4K… is the borrower stressed?

    • darklydrawlMEMBER

      Whilst I don’t disagree, remember that Neg gearing only works if you are paying tax. Otherwise it is just a loss.

      • Its also only your tax back….. the less income you have the less you get back…….

        • I know its a tax back thing. but lots of ppl use negative-gearing intentionally. For example minimising tax by using negative gearing (pure IO), funneling cash into non-deductible debt like PPOR and building equity there. Many are doing it.

    • “Our model cannot account for the increase in [household] debt over the past four or five years,” it said.

      Translation – “We are basing this on an old data set from 2015 because the 2020 one says we’re screwed.”

    • working class hamMEMBER

      The sheer fact that the guarantee has to be enacted by the current treasurer, with the Bail-In law being the status quo, should be reason enough for any concerned depositor to make a decision.

  11. There’s no forced sales coming. They will do whatever it takes to keep people hanging on until the government loosens access to super. Then it will be crisis avoided and back to business as usual.

    • This guy knows!! Let the banks take the super to avoid losing their “homes”. Problem solved … for now.

      • Letting people use their super to funnel into their mortgage will bail out the banks. Government will look good because it will be an instant sugar hit. The fallout from such will be decades away so let the good times roll!

        Meanwhile the sensible ones (savers) who don’t access their super will be sitting on the sidelines, waiting another 8 years for the crash to come…

    • Using Super funds, won’t work for many Investors who are already holding the IPs in their SMSF, and have borrowed the money outside of it.