As I have outlined adnausum in many posts we are headed for a soft financial depression where you won't be able to take advantage of those 2% interest rates I have spoken about because of a severe liquidity crisis that could as a worst case scenario last 10 years. When property prices in Japan collapsed in the 1990's interest rates went to 0.5%
I too enjoy alternate POVs. Yours seems to be one of the more extreme though. 2% IRs for 10 yrs - sounds like free money to me - I'd guess yields wouldn't be falling much from their 4% level. That worst case scenario of yours doesn't sound to bad to me. Most here have already borrowed money.... sure more borrowings would be nice, but if the banks won't lend, then many would be happy paying off principle with the excess of income as a 2nd best option.
You say I have no proof for any of this and it is all scare mongering? What I say to you is we have had 16 years of incredible growth in property like the world has not seen before.
You haven't offered proof.... you've quoted 16 yrs of history. According to some economists, housing needs 2 yrs of no growth, with inflation/wages @ 4% to return to long term trend. Disposable income had a corresponding increase in the last 16 yrs too, so affordability has remained v. similar throughout that period.
The property boom was funded by a securitisation market that allowed banks to sell the debt to others so their balance sheets "looked rosy". The Australian banks do not have enough deposits to fund all its borrowings. So where is all that money going to come from? It is certainly not going to come from overseas. THE SECURITISATION MARKET IN AUSTRALIA IS DEAD AS A DODO.
According to last months presentations by the big 5 banks, they've already raised all the $$ they expect need to for this FY - (presentations are on their respective web site or ASX). The RBA recently released a
report showing that they are less reliant on O/S & securitisation and have increased depoosit significantly.
This increase in competition in deposit markets has coincided with a renewed appetite by Australians for bank deposits. According to the Westpac and Melbourne Institute Survey of Consumer Sentiment, more people now say that bank deposits are a wiser place for their savings than real estate or shares (Graph 11). This is the first time that this has been the case for more than two decades. As a result, bank deposits are growing very quickly, increasing by 18 per cent over the past year, the fastest growth for many years (Graph 12). Term deposits by the household sector have grown even faster, up 40 per cent over the past year. Not surprisingly, many banks are now paying more attention to how best to attract and retain depositors.
Do you not read the financial papers? Have you not heard of a listed property trust called centro? Their assets are second to none yet they cannot secure funds to roll their debt over. Centro is headed down the drain with a gaggle of U.S., European and Australian banks including the nab and the anz left holding blue chip commercial real estate here in Australia that has already dropped 50%. We are talking a cool 5-8 billion in losses.
Centro is a world away from people on this forum.... there is no comparison - its' loans
needed to be refinanced at short notice at low (pre-crunch) rates to survive. It took huge risks with massive leverage and little regard for risk management... and failed. ResIP loans are for 25+ yr terms. In the same RBA report it emphasised that Oz banks have the highest credit ratings in the world. Comparing to resIP to Centro
is scaremongering. NAB & ANZ (& ther others) made $4B+ profit each last yr, lossed of $4-8B each aren't going to send them to the wall.
Here in Victoria the job losses are climbing and discretionary spending has nose dived
This normal in this part of the cycle.
We have protected ourselves by selling our least valuable property last week after a very long and difficult sales campaign. We have our most valuable asset on the block tomorrow but I am not confident it will sell. I have been at three commercial auctions in the last week where investors stood around with their hands in their pockets and agents mumbling things are not good.
Good luck with the auction. You've stated your view is for 10 yrs of 2% IRs - if you're serious about putting your money where your mouth is why keep ANY property ?
I won't be gleeful next year when reality and the pain appears on this board. If your starting your investment journey you want to be very sure you have a fat reserve to protect your seed capital. If you are thinking of borrowing 95% think again. Things have changed the rules will continue to change as the big four banks have the whip and its payback time for all those brokers. History shows that when times are tough and liquidity is scarce banks will only lend to people who don't need it and to those they are sure of getting it back from quickly.
I'd agree that the rules have changed - changed to what they were before 2000 - full-docs are fine, no-docs - forget it, lo-docs - currently possible. There's no sign of credit rationing here yet (for full-doc), banks reserves are the highest they've been for many years, Australia have some of the strongest banks on the world.
In the sharp end of the equity and futures markets brokers call mum and dad investors piglets because they squeal when they lose their life savings. It has been very easy to make a lot of money in the property market for the last ten years. There are a lot of over confident individuals on SS who have sneered at my postings. I have put my money where my mouth is and protected us as best I can. In the next two years the real property investors will flourish and my bet is that will be those who have protected themselves. I doubt that you will hear the squeeling on SS because like gamblers, losers only tell you about their winning
I think those with the good buffers & risk management will survive this part of the cycle. Your 'worst case' scenario is 2% IRs and no borrowing available. Rents have risen & that appears likely to continue, sounds like seriously c/f +ve IP to me, you'll hear no squealing from me if that happens
. You think new borrowing will be hard..... quite possibly, but that's something that will make it harder (but not impossible) for new investors, existing borrowers are v. likely to be fine, especially with better c/f. If prices do fall by 50%, then some of us will have -ve equity, but good cashflow. Another side effect of 50% falls in IP is that land would be free - construction costs are usually around 50% of IP value... ain't gunna happen.
In this part of the cycle the environment will be harder than it has been, no-one (central banks, govt, banks, public) wants it to be unnecessarily hard. They will do all they can to get to the next bit of the cycle sooner rather than later, IRs will fall, sentiment will improve slowly, trust will return and we will return to an housing environment vaguely similar to 90s.... maybe take 10yrs, maybe less
