Dire Straits?

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Dire Straits?

A recent alarmist piece on television about house prices implied that they could drop by 40% and it was not surprisingly met by much scepticism by people in the property industry.
This is not 2010 or 2012, we have a fairly healthy economy, the projections are that the deficit for the current financial year will be close to zero. It is tougher to get finance, mortgage rates are creeping up albeit only a few points at a time and the price declines in Sydney and Melbourne which dominate media are impacting sentiment.
Not all of Australia is seeing declining prices, Hobart and Canberra continue to see strong growth, Brisbane seems to be improving, even Perth seems to be at the end of four years of tough conditions.
The Gold Coast seems to be going along fairly well despite the steady fall in turnover over the past couple of years from the 2016 peak. For the Southern Gold Coast the fall in turnover seems to be in the order of 20% but the decline up until now has been fairly gradual with rising prices and to a large degree is being brought about as deliberate policy intended to make housing more affordable nationally for first home buyers.
Prices now seem to be leveling, much of the policy pressure falls on investors but owner occupiers are also feeling it.
The other surprising aspect feeding into this mix is reaction by the Banks to everything that's been raised in the Financial Services Royal Commission. Banks are becoming very conservative businesses. Everyone is finding it hard to get finance but investors are feeling particularly challenged.
Restricting depreciation concessions to new property is not necessarily driving the market towards new homes as it was intended largely because the banks are being restricted in the amount that they can lend interest only and particularly where the lending is to self managed super funds. The AMP was the latest financial institution to abandon Limited Recourse Borrowing Arrangements.
Lending limits themselves have been reduced and to top it all off for us we have a sale going through at the moment where one of the major banks has decided that it will no longer lend bridging finance to retirees even in situations where there is minimal risk to the retiree or the bank.
Hopefully when the Royal Commission completes its report although there will no doubt be restrictions the Financial Services Industry may be able to get back to business.
If you look around the Gold Coast right now the property market seems to be in pretty good condition but as the Chinese say we live in interesting times.

by David Hamilton

Dire Straits? September 2018
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