February 7, 2017

Already, Some Are Reselling At A Loss

A report from Bloomberg on Australia. “The Reserve Bank of Australia frequently seeks feedback on the health of the economy. It might want to call the debt counselors soon. Homeowners, consumers and property investors around Australia are making more calls to financial helplines as three warning signs back up the spike in demand: mortgage arrears are creeping up, lenders’ bad debt provisions have increased and personal insolvencies are near an all-time high. ‘Its steadily out of control — I don’t know of too many financial counseling services where demand doesn’t exceed supply,’ said Fiona Guthrie, chief executive officer of Financial Counselling Australia, who says the biggest increase in calls is from people suffering mortgage stress. ‘There are more people who have got mortgages that they can’t afford to pay.’”

“Australians’ private debt has soared to 187 percent of their income, from around 70 percent in the early 1990s, encouraged by low interest rates. The jobless rate rose for the second straight month in December to 5.8 percent, while underemployment — the number of workers wanting more hours — is near an all-time high. At the same time, wages growth is the lowest on record. Moody’s Investors Service and S&P Global Ltd. have both said that 30-day arrears on Australian mortgages packaged in securities they track are at multi-year highs.”

“Unsurprisingly, the worst hit areas are in Western Australia, where 2.03 percent of mortgages were in arrears, up 48 percent year-on-year, S&P said in December. In New South Wales, the strongest economy, mortgage arrears were up 11 percent. Australia & New Zealand Banking Group Ltd. Chief Executive Officer Shayne Elliott said in November he saw ‘emerging signs of stress’ in the economy, citing both households and small businesses. Citigroup banking analyst Craig Williams pointed to potential areas of concern in apartment construction and unsecured personal lending when he said ‘the credit cycle has turned’ last month.”

From Domain News. “Australia’s three biggest capital cities will all face falls in property prices as record levels of apartment building translate into an oversupply, economists claim. An overwhelming majority of 26 housing experts and economists surveyed by comparison website Finder believe there is an oversupply of apartments in Melbourne and Brisbane. Already, some property owners who bought off-the-plan in Brisbane in the past five years are reselling their properties at a loss, BIS Shrapnel senior manager residential Angie Zigomanis said.”

“His research into inner Melbourne re-sales of new apartments bought since 2011 found more than 50 per cent of vendors were selling for less than they bought the properties for in areas such as Southbank, Docklands and the CBD. In Brisbane, about 20 per cent of those buying since 2011 were selling at a loss, but that figure likely understated the nature of the oversupply due to strong price growth in 2012 and 2013. ‘People pay a premium to buy new and there have already been people who have taken a hit,’ Mr Zigomanis said. But he said the effect was limited to the inner suburbs, rather than a city-wide oversupply.”

The Canberra Times. “Property investors speculating on capital gains need to be careful as rental yields in Sydney and Melbourne hit record lows. CoreLogic figures show the ‘gross’ yield – before costs – on both houses and units reached record lows in January across Sydney and Melbourne. The gross yield on Sydney houses in January was 2.8 per cent and in Melbourne it was 2.7 per cent. Sydney units recorded a gross yield of 3.8 per cent and in Melbourne it was 4 per cent.”

“‘While rental yields plumb new lows, investment in the housing market has been consistently ratcheting higher, which implies that investors are speculating on further capital gains in the housing market,’ says Tim Lawless, the head of research at CoreLogic.”

“CoreLogic figures show 40 per cent of off-the-plan settlement valuations are coming in under the contract prices across the Melbourne, Brisbane and Perth. Buyers who receive a valuation lower than the original contract price will generally require a larger-than-expected deposit in order to meet the loan-to-valuation ratio required by the lender, Lawless says. As units in areas with a lot of supply come to settlement, the risk of buyers receiving a ‘finance shock’ is heightened, Lawless says.”

“Sam Lally​, a buyer’s agent at Buyer’s Advocate Australia in Melbourne, says areas like St Kilda Road, Docklands and Southbank are ‘fraught with danger because of the supply of apartments.’ ‘And we don’t touch-off-the plan – it’s just too risky for our clients,’ he says.”

The Chinchilla News. “A decision to not change the First Home Buyers Grant, after pressure from the Gladstone mayor, has been slammed by a leading property market group. REIQ says the State Government is not listening to regional Queenslanders, after a suggestion to extend the First Home Buyers Grant to existing homes was ruled out last week. REIQ CEO Antonia Mercorella said, ‘Our concern is for the long-term impact and the bigger picture in regional Queensland, where new construction is exacerbating the oversupply issues that these markets are facing. House values are falling, with some markets as much as 30% below levels five years ago. Continuously adding supply of housing to oversupplied markets is irresponsible and will slow down any future recovery.’”

From Nestegg. “Basis Point general manager CT Johnson has flagged the Chinese government’s move to restrict foreign outflows of Chinese capital as an underlying risk for the Australian property market. ‘There’s been increasing problems for Chinese people who wanted to buy property. The main problem there has been that over the last 18 months, the Chinese government has started to squeeze on their ability to get money out of the country,’ Mr Johnson said at the company’s annual Australia-China Investment round-up.”

“That combined with APRA’s decision to prevent Australian banks’ capacity to loan to foreign investors should see reduced property demand. ‘That is a double whammy to a lot of Chinese people wanting to buy off-the-plan properties,’ Mr Johnson said of APRA’s decision.”