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Experts warn of ‘debt bomb’ as housing downturn worsens

debt bomb
AUSTRALIA is facing a “debt crisis” — and the property market and our entire economy are at risk as a result.

That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg.

According to reporter Tom Steinfort, the current slump is actually “more like falling off a cliff”, with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.

If that happens, it would also cause an economic “catastrophe”.

Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn.

“At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,” he said.

“There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending.

“That’s higher than any other country in the Western world by a long way.

“There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”

Mr North said Australia was now in the same position as the US was back in 2006 and 2007 — a position which triggered an economic collapse.

“As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,” he said.

“We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.”

debt bomb

Melbourne homeowner Mohammed Souid told 60 Minutes his family was experiencing mortgage stress. Picture: 60 MinutesSource:Supplied

It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year — a shocking $200,000 plummet.

He said foreclosures had also risen by 600 per cent in the region.

“The mortgage stress is definitely being felt especially in this area,” he said.

60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being “hounded’ by their banks.

What does a million dollars buy in Aussie capital cities?

debt bomb

Market analyst Louis Christopher of SQM Research said the market had been “clearly overvalued”, labelling the downturn as the “correction we had to have” — at least in Sydney and Melbourne.

“On our numbers, Sydney was effectively over 40 per cent overvalued. And Melbourne was overvalued by about the same amount,” he said.

But property investor Bushy Martin said the blame lay squarely at the feet of buyers who “mortgaged themselves up to their eyeballs” in a bid to snap up dream homes before being able to afford them.

debt bomb

Property investor Bushy Martin says homeowners are to blame for the crisis. Picture: 60 MinutesSource:Supplied

However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated.

One Reddit user branded the report as an example of “alarmist journalism and scare tactics”, while another said it was “dramatic and cringe-worthy”.

Others also criticised the segment for making it seem like all homeowners would be affected, when the downturn was actually mainly focused in the NSW and Victorian capitals.

And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.

That was in response to comments made by one homeowner on the program, who said the bank had “suddenly switched the mortgage to interest and principal”, raising his repayments by 57 per cent.

“The interest only part annoyed me the most. The bank didn’t ‘suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,” one Reddit user said.

Source: news.com.au

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Brisbane

‘Absolutely inundated’: Lack of stock drives Queensland interest

‘Absolutely inundated’ Lack of stock drives Queensland interest

As open-home restrictions begin to lift, a Brisbane agency has reported huge interest from first home buyers clamouring to get onto the property ladder despite COVID-19.

Coronis Agency has reported that it had more than 80 potential buyers attend the first scheduled open home of an Archerfield property.

The three-bedroom, two-bathroom property only hit the market last Thursday and received more than 56 phone and email enquiries within 48 hours.

Director Anthony Hunt said the agency was “absolutely inundated with buyer enquiries within 30 minutes of the property going live, with many buyers asking to schedule a private inspection on the Thursday night or Friday as they were eager to beat the rush on Saturday”.

“In the end, I opened the property up on Friday afternoon and had nine groups of buyers turn up purely from responding to their calls and emails,” he explained.

He added that at the Saturday open home, which was the first advertised inspection, “it took more than an hour to get everyone through the property due to the social distancing restrictions, but on the whole, everyone was really understanding and willing to wait their turn”.

Mr Hunt said the general feedback he received from most parties is that “they want to buy something right now, despite everything going on with COVID-19”.

“Many of them are first home buyers with pre-approval who are looking to get their foot on the property ladder and aren’t fazed about going out in public to attend open homes,” he said.

The director believes that what they’re more concerned about is the lack of properties to choose from and how quickly properties are selling at the moment.

By Saturday afternoon, Mr Hunt said he had received four offers and it was under contract by Saturday night for a price that exceeded the seller’s expectations, “so they’re very happy”.

While 140 Granard Road was “beautifully presented”, the agent expressed the opinion that the main reason it was so popular with buyers was because it offered “great value for money in a suburb only 15km from Brisbane CBD”.

He iterated that buyers are willing to look outside of their desired suburb to purchase the right property.

His message to those who are considering holding off on selling? Don’t wait.

“In the past week, the Coronis sales team has received more than 1,000 buyer enquiries, and from that, 550-plus groups attended an open home on the weekend, so there is no doubt about it — buyers have a strong appetite to purchase now, they just need more options to choose from,” he concluded.

 

 

 

This article is republished from www.smartpropertyinvestment.com.au under a Creative Commons license. Read the original article.

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Opinion

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn

House prices are tipped to fall by 11 per cent over the next three years as the COVID-related economic downturn bites, and for one group of Australian homeowners, it could not come at a worse time.

There are an estimated 730,000 investors, many of whom are self-funded retirees or people planning for retirement, who have taken out interest-only bank loans in the belief property was a safe bet.

Coronavirus has already delivered challenges, including rent arrears and the prospect of losing their tenants altogether.

But now these private landlords are facing big hikes in their monthly bank repayments as they switch from interest-only to paying off the principal of their loans as well.

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (2)

Max Green is one of many who has been trying to negotiate with the banks for an extension to the interest-only period of his loans.

The 69-year-old and his partner have bought two properties — one in Brisbane, the other in Perth — in the past 10 years to help fund their retirement.

But the value of the Brisbane property has flatlined and the Perth property, a unit in the city’s outer suburbs, has plummeted from $425,000 in 2016 to $300,000 today, according to a recent valuation.

“The intent was … to provide us with some equity growth in the properties, which would then assist us in the future once I had retired,” Mr Green said.

“We had been advised that we would be able to extend the interest-only period.”

Coronavirus combines with end to interest-only home loans in big hit coming for investors, experts warn (3)

Instead, the couple face paying an additional $1,900 a month from July as they begin to pay off both the principal and interest on their loans.

Mr Green said he still enjoyed his work as a project manager at WA’s Water Corporation, but conceded his retirement ambitions had not gone to plan.

He said he would now be forced to either keep working beyond 70, dip into the couple’s superannuation to pay the banks, or sell at a loss.

Investors brace for massive losses

Others with similar investment plans have already decided to cut their losses and are now facing negative equity as a result — where their home is worth less than the amount they owe.

Wayne Grimes, 50, said he couldn’t help but laugh when he considered the price he would likely now get for his luxury investment unit.

“I’m laughing because it is just ridiculous,” he said.

 

 

 

This article is republished from www.abc.net.au under a Creative Commons license. Read the original article.

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Brisbane

How COVID-19 has impacted tourism hotspots

How COVID-19 has impacted tourism hotspots

New research has revealed the impact COVID-19 restrictions have had on Queensland’s tourism property markets.

The Palaszczuk government’s mandatory COVID-19 restrictions went live from 20 March 2020, with knock-on effects to the state’s property market.

However, despite the perceived effects, the REIQ said the sunshine coast capital – Brisbane – has reported a relatively stable vacancy rate of 2.44 per cent for the last quarter.

But how has this translated to tourism hotspots?

Gold Coast

According to the REIQ, this quarter’s rental vacancy data provides a peek at the initial impacts of the coronavirus pandemic across popular tourism hotspots in particular.

“The Gold Coast saw an end-of-summer sharp spike result in a 1.2 per cent rise to 3 per cent (with only a 0.4 per cent increase in the Scenic Rim region).

“Up the coastline and it’s not so different around the Bay Islands district where the archipelago average soared by 2.7 per cent to a vacancy rate of 4.3 per cent (making up part of the state’s 10 per cent weakest regions).

North of Brisbane

When it comes to areas slightly north of Brisbane, the REIQ noted that most areas have remained stable with little movement either way.

“For example, Caboolture saw a drop in vacancies (-0.6 per cent to 0.8 per cent) while Redcliffe saw a marginal rise of 0.1 per cent to level out still within tight vacancy range at 2 per cent,” REIQ said.

“Further north and the Sunshine Coast hasn’t offered up any side effects from COVID-19 as of yet, with a 0.2 per cent drop in vacancy rates across the region to 1.4 per cent.

“Even inland across the majestic hinterland region the average vacancy rate reflected a 0.8 per cent decrease to 1.5 per cent.”

Coastline

There’s some “unmistakeable movement upward” when it comes to areas back along the coastline, according to the REIQ.

“Early tremors of COVID-19 [are] attributable to those results recorded in Noosa (+1.3 per cent to 3.6 per cent) and Fraser Coast (+1.4 per cent to 3.1 per cent) which includes Hervey Bay (+2.4 per cent to 4.3 per cent),” it said.

“Drive a few hours north and more stable yet tight vacancy rates become the norm once more from Bundaberg (+0.9 per cent to 2.4 per cent) through to Rockhampton (-0.3 per cent to 1.3 per cent).

“However, the outlier here is Gladstone. With mining and infrastructure projects on the go, demand for trades has boomed – with vacancy results reflecting rental demand by a staggering 2.5 per cent to a record low of 1.6 per cent for the region.”

The REIQ noted Mackay represents the only area across Queensland that’s remained unchanged over the quarter (2.5 per cent).

Far North Queensland

Townsville remained relatively unscathed with vacancy rates fairly stable (+0.8 per cent to 2.9 per cent), according to the REIQ.

Meanwhile, Mount Isa saw a 1.1 per cent drop to 2.5 per cent, proving the state’s largest township maintained a healthy rental market in the first quarter of 2020.

“Unfortunately, the same couldn’t be said for Cairns,” REIQ said.

“As the gateway to the Great Barrier Reef, Port Douglas and the Daintree Rainforest, the tourism-driven region closed out the quarter with a 1.8 per cent increase to 3.5 per cent rental vacancies – teetering on the edge of weak market conditions after experiencing record-low vacancies over the last 12 months.”

Commenting further on the results, REIQ CEO Antonia Mercorella said:

“Any further surges in vacant properties across Queensland’s tourism regions are likely to be addressed by future tourism-focused initiatives to boost domestic holidaymakers.”

“It’s an optimistic start to the year. The next quarter will reveal more about the true impact of COVID-19 on the Queensland rental market.”

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