Hypothetically speaking what happens ….

Hypothetically speaking what happens ….

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If Labor wins the election and removes negative gearing from existing properties and we see a massive price correction in the newly built apartments because many would slide into negative equity – the banks then come in with forced sales. Investors then can’t buy these properties because they now fall into the existing category. Actually this is not a hypothetical as this is already happening in Melbourne and we are starting to see these newly created markets with a death wobble in Sydney.

The problem for example in Sydney is that tens of thousands of new apartment blocks are being created with absolutely no transport infrastructure to support them. You can’t include bicycle lanes, trams and double decker buses as a solution – which is all that is being offered. This glaring lack of transport infrastructure will only drive prices lower which is an economic disaster given governments are trying to ignite a very fragile economy.

Kudos to the Housing Industry Association (HIA) who this week announced that “we don’t have a national housing plan.” Well actually under the current Government we don’t even have a housing minister. HIA Chief Executive Industry Policy and Media Graham Wolfe said “Successive Federal Governments have failed to coalesce the roles, responsibilities and endeavours of state, territory and local governments. Governments at all levels, and their well – intentioned agencies, work outside of a national housing strategy. They don’t act in unison, towards a national goal. It’s like attempting to piece together a jigsaw without knowing the image or landscape.”

Warning_sydney_aerial_photographySYDNEY AERIAL PHOTOGRAPHY

JPMorgan announced this week that the national oversupply of apartments had hit 70,000 where banks are increasingly revaluing these properties well below the acquisition price – so you see this is not really a hypothetical as it’s already happening. Next we need to factor in a falling cash rate where many are suggesting it won’t be long before we have a 1.00 per cent cash rate which will then require additional home loan repricing at the same time where we can expect to see rents reducing due to an oversupply.

Another recent report by LF Economics said “Contrary to analyses by vested interests, data overwhelmingly demonstrates Australia is in the midst of the largest housing bubble on record, enabled by a deregulated banking system which has issued enormous sums of debt.”

The recent Federal Budget highlighted concerns of $67.7 billion in combined fiscal deficits by 2020 coinciding with net government debt up from $285 billion to $355 billion over that time. Throw in the likelihood that Australia will lose its cherished AAA rating and the picture keeps going from bad to worse.

So what happens if Australia has a significant property price correction thanks mainly to state Governments driving these new high density apartments. The banks are well and truly too highly geared so how can the federal Government afford to prop up the banks when their own finances are in complete disarray?

The latest data from APRA to March 2016 pertaining to the financial position of the Australian banking sector also identified worrying concerns. Net profit after tax from the sector fell 12.5 per cent to $390.8 billion, total assets rose 1.1 per cent from March 2015 with the capital adequacy ratio rising 1.1 per cent to 13.8 per cent. Total provisions were down 13.9 per cent compared with March 2015.

CoreLogic – Moody’s Analytics has the Sydney housing market posting growth of 7.3 per cent this year which is half the rate of 2015 where we saw 14.9 per cent growth. The value of investor home loan approvals fell a further 5 per cent in April to 11.3 billion, nearly 21 per cent below the level of a year ago based on figures released from the Australian Bureau of Statistics.
As a natural progression we are now starting to see property developers shelving new development works which further slows the economy and drives up the unemployment rate.

Of course there will be those who say this is Straya mate – she’ll be right! As I have said for quite a few years now moving the off – the – plan ratio from 50 per cent to 100 per cent in December 2008 was never going to end pretty. In August 2008, the cash rate was 7.25 per cent, September 2008, it was 7.00 per cent, October 2008, it was 6.00 per cent, then November 2008, 5.25 per cent, then in December 2008, 4.25 per cent – eight years later it’s 1.75 per cent.

If the ALP wins next month’s federal election don’t be surprised to see negative gearing become its first policy back-flip.

MOSMAN – 2088

Number of houses on the market this time last year – 55

Number of houses on the market last week – 51

Number of houses on the market this week – 48

Number of apartments on the market this time last year – 66

Number of apartments on the market last week – 41

Number of apartments on the market this week – 41

CREMORNE – 2090

Number of houses on the market this time last year – 13

Number of houses on the market last week – 10

Number of houses on the market this week – 13

Number of apartments on the market this time last year – 11

Number of apartments on the market last week – 18

Number of apartments on the market this week – 18

NEUTRAL BAY – 2089

Number of houses on the market this time last year – 3

Number of houses on the market last week – 8

Number of houses on the market this week – 7

Number of apartments on the market this time last year – 29

Number of apartments on the market last week – 19

Number of apartments on the market this week – 19

For this week’s sales in Cremorne real estate, Cremorne Point real estate, Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Neutral Bay real estate, Cammeray real estate.

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Source: APM Price

One Response to “Hypothetically speaking what happens ….”

  • Olaf says:

    What happens? What usually happens when greed overtakes rational investing and a massive bubble has formed.
    There is a correction, often quite large and quite uncomfortable.
    That is hopefully what will happen but no doubt vested interests in the real estate and finance sectors will do all in their power to have the government provide some sort of relief to the foolishly over-leveraged.

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