Approaching tipping point

Amazing how it happens.  Political pressure and self interest ensure the general public receive almost no real news about their biggest investment…. until, of of course, it is far too late for the majority to get out of the way.

And so, it seems, today, for me at least, is the tipping point.  In reading all the major newspapers over the last week or so, there is more bad news about the faltering real estate market than I’ve seen in any previous twelve month period. And I will blow my own trumpet here – it is all OLD NEWS!  I have been writing about this day for the last 3 years.  The craziness in the market – the craziness in the eyes of desperate ill-informed bidders at auctions, and the interference of the Chinese Government, through it’s agents, in using money sent to Australia to blow Auctions out of the water!

The sheer fright will start in Nappy Land, with over geared, lied-to youngsters with massively high percentage mortgages against their poorly built and badly located “dream houses’ in the middle of nowhere.  The suffering will start here and be the greatest pain to the people who, sadly, can least afford it.  There is so much of this “crap” property that I would not be surprised to see 50% drops as streets fill up with Auction signs emblazoned with “Mortgagee In Possession” stickers at 45 degree angles, as if to add to the misery knowing that the Banks are going steal back your biggest  possession (Notice I did not say “asset” because it ain’t an asset if it’s an albatross!).  Property the Banks financed knowing full well that this day would come.  Brokers who continue to complete bullshit Loan Applications to Bankers who rubber stamp and approve anything with a thready pulse!

I read the local joke of a paper where colourful articles showcase multi-million dollar sales in flash locations as if the owners have made yet another couple of million profit. The facts are that these behemoths have been on the market for 2 years or more, have started at $4.9 million ask and were finally sold for $3.75 million.  What is not revealed is that the mortgage was $3.5 million and the necessary renovations cost $500,000.00 to make the place pass a Building and Pest Inspection!  I know these figures as FACT but I won’t embarrass anyone with the address/s.  The house next door, nearly identical in form, function, size and aspect, sold in 2013 for $5.5 million. Using the RBA Inflation calculator, the neighbours house would have to sell, in 2018, for at least $6.25 million just to get their money back!

Its all smoke and mirrors and I call bullshit on all of it!

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Here it comes… as telegraphed right here

I know I’ve been ‘banging on’ about this crazed market for a while, but when anything goes this far above the inflation line and continues to skyrocket, there is always, always gonna be a correction.

This market is so full of hype and external interference that any correction, as we are now firmly ‘IN’ will not be a soft landing.  I don’t care if you adopt the brace position, its not going to do you any good.

I have followed my own advice and invested in other asset classes since 2008.  My returns, following the leadership of some really, really smart people, have outpaced property 3 to 1, and not once have I had to deal with a stroppy Property Manager or a flea bitten grub of a tenant.  Bliss and Happy Days!

Now, using your self managed super fund (SMSF) to buy an investment property has always been a bit of a dodgy exercise.  Whilst in no way an expert in SMSF, I am reliably informed that an investment property does NOT meet the basic guidelines of what you can invest in and you are liable to get yourself in a lot of strife with the Regulator. But wait! There’s more!  Westpac just pulled the plug on lending to SMSF to buy property!  I wonder why?  Shock and Horror to some but I can’t believe its taken this long! The other Banks and major lenders will all follow suit shortly I’d imagine.  No one wants to be left ‘holding the bag’ when this market goes from a slowdown to a Zip Line ride into a cliff!

Several friends of mine have actually taken my advice and divested themselves of their properties for top prices.  They are very happy sitting on their pile of cash – some waiting to buy their own place back for $200,000.00 less! Oh – it will happen.  I am old enough to have seen this before.

When you get big banks getting this nervous and making quantum shifts in policy, it’s time to lift your head out of the trough and take a good long sniff before that lion sneaking up behind you takes a huge bite out of your ass!

Educate yourselves and get out of this market NOW!

Onward and downward it goes

It seems at last my “Sky Is Falling” predictions are coming home to roost.  The Brisbane market is still flooded with apartments with 8,000 coming on stream before the end of 2018 and another 5,000 or so due in 2019.  The important part to note is what the Registered Valuers and Banks are doing to the asking prices…  The Valuations are coming in at 15 to 30 percent below the asking price. This will cause a few undesirable effects.  Existing owners may panic and put their apartments on the market, causing the glut to only increase and put further downward pressure on prices.  Brokers and Banks with no morals will continue to stitch people up into loans for these overpriced properties by lending against another property to make up for the shortfall in “real value”.

I’ve been following “Nappy Land” north of the Gold Coast in real time.  There are already a startling number of mortgagee in possession sales going on with the Banks putting pressure or caveats on Agents to NOT USE the term Mortgagee in Possession on any form of advertising lest it create a panic in the marketplace.  Interest rates look set to rise in 2019.  A One Percent rise in Nappy Land, where most of the people have no in depth knowledge about what kind of loan they signed up for,  will cause terminal failure mortgage stress.  The median repayment will jump from their INTEREST ONLY LOAN to PRINCIPAL AND INTEREST LOAN, some $800.00 a month in the majority of cases.  These people have NO IDEA what is about to hit them.  No idea!

Locally, I am sick of reading about people buying 3 years ago for $600,000 and selling at auction for $720,000.  Marvellous I hear you say.  In one recent instance I took a trip to the house itself and spoke to the neighbours.  This house had a half floor second story added, another garage, a wall on the street frontage, electric gate, carport and the double garage converted to a rumpus room.  Honestly, after that expenditure do you think they made any profit at all?  I don’t think so.  It is just this kind of bullshit journalism that continues to feed the Fairy Tale that even in these times, buying a house is a great idea.

The Sydney market is toast!  I have many friends who live in Sydney and report real time sales in their area to me.  Same story.  Big falls off highs and auction clearance rates that say that Buyers are now in “Bargain Hunting Mode” at Auctions and are not being as caught up in the fever as they were a year ago.

 

If you have a property and especially if you are relying on its sale to fund your retirement, sell it NOW, realise any gains, go rent for a while and then buy your old place back at $200,000, $300,000 or even $400,000 less than you sold it for.

It’s on track in Brisbane – for a massive correction

Speaking with friends in Brisbane. Massive deals on Apartments and an increasing number of horror stories.

How about large 3 bedroom plus study apartments with 2 car spaces at exactly the same price as they were in 2008? Great investment huh?

How about apartment developers giving back “cash in hand”  up to 10% of the purchase price so that transfer duty is paid at full price to effectively disguise what is really going on in the over supplied market?  Dodgy huh?

Agents actively encouraging buyers to submit “low ball” offers to get a sale and commission quickly!  Nice one people.

One yet to be completed project has lowered its official asking price for 2 bedroom apartments by $90,000 in 6 months.  No takers.  No offers. No sales. Savvy apartment buyers in Brisbane are inspecting displays in ever increasing numbers but both hands are shoved deep in their pockets!

It’s the start of an avalanche.

Mortgage Stress is real – coming to many suburbs near you – soon !

Just here in Queensland, many analysts say near 200,000 mortgages were super sensitive to ANY mortgage rate rise.

The near defaults right now range from 10,000 to 20,000.  Banks won’t reveal how many households are currently in negotiations to try and save themselves from repossession action.

The huge number of loans, especially in “Nappy land” about to reset from Interest Only Honeymoon rate to Principal and Interest Penalty rate will ensure blood in the streets and a domino effect on the market.

I keep saying it.  Wait til rates rise 1 full percent and see what happens!

Media makes me laugh – always- so pathetic

Spouting yet another “record price” for a piece of minor CBD commercial property, the writer revealed the purchase price, date of purchase and the recent sale price.

You don’t have to be Einstein to put the raw purchase price into the Reserve Bank’s inflation calculator and see the sale price is actually a 10 percent LOSS over the holding period.  My raw calculations do not take into account purchase and sale costs.  I did a quick add and subtract, and the loss crystallized at near 20%.

I know the building concerned.  Sellers have had their long time vacant strata titles on the market for up to 3 years.

Hot market?   Records?

Rubbish!

 

 

Sydney, Sydney, Sydney

The leader of the real estate market is suffering a serious case of….

Auction Numbers, prices and clearance rates are very low and yet it is not hitting the mainstream news as it should. I wonder why.

We all know WHY. The Media is this so-called free country is as badly manipulated and manipulative as in any communist regime.

Combine the big banks lack of appetite for any bad real estate news and the Government’s equal distaste for any hint of a “crash” and all this suddenly becomes “no news at all”.

Sounds a bit conspiracy I know however I have first hand experience of this country’s media as I was a Public Relations Officer in Headquarters Operational Command Air Force for a while as part of my “career development”. “Liar Liar Pants on Fire” was a common catch cry.

Watch this space!

Reserve Bank of Australia now concerned

I don’t have to write anything except Google RBA concerned about Mortgage Stress, interest only loans and top down stress testing of the Banks.

Sydney Siders’ Sliding

It’s being widely reported and my friends in Sydney who “know the market” attest to a slide in Sydney’s astronomical property prices.  People are getting the jitters.  The smart money has already “left town” and has found a home in the stock market, gold and other hidey-holes.

I was chatting recently with a couple in their early thirties – we started a conversation at a local coffee shop.  They were wondering what to make of rumours of interest rates about to go up.

They confided that they had a $400,000  “VIP” type loan through a Broking House on their principal place of residence.  They had an electronic copy of their contract so I took a peek.  Just as I thought – another “Interest rate holiday” that will be clawed back by the Lender in Years 4 and 5.  Poor people had no clue.  They hardly understood what I was telling them.

Their repayments NOW are $1,833.00 per calendar month, interest only.  By the time Year 4 comes around, very conservatively, interest rates will be at least 1 percent higher than they are today.  Years 4 and 5 come with an extra sting in the tail.  Their repayments will revert to Principal and Interest at “1 percent above market rate”.

I got into a Mortgage Calculator.  Their repayments will jump $642.00 per month or by 35 PERCENT.  I thought the poor dears were going to faint.  “But, but, but…..”  they stammered.

They bought me a coffee, said “thanks” in a wheezy, incoherent sort of way, and walked, leaning on each other, toward the beach.

The rot is starting to set in

As soon as I saw the huge number of Apartment starts planned for South East Queensland I knew there’d be trouble.

I watched the advertised “starting from” prices for 3 nearby developments go from $399,000  to  $389,000  to  $349,000 and $309,000  over 12 months until now where there are no prices listed, just FOR SALE signs.

Chinese who bought off the plan face capital export bans and are unable to complete their purchases. No solution here either as local banks will not finance them. The fallover rate for offshore Contracts is running at 50 to 70%.  Buyers are walking away from their 10% deposit and Developers are unable to force completion.  Try suing an individual in China…  good luck.

Panic re-sales are resulting in spectacular losses. One large high floor apartment sold at a 42% loss before completion with the average loss now creeping  into the 35%+ range.

This in the start of a pandemic.  You cannot have such a large sector suffer huge monetray losses and loss of confidence without the effect spilling over into the rest of the market.  Banks will pull tighter on lending criteria  – there are many calls for Royal Commissions into Broker and Bank predatory lending practices – nothing will come of it of course, the blame being put on “market conditions” or some other such nonsense.

With interest rates on the rise, Banks under pressure and “the market” suffering a serious case of “the wobbles”, it won’t be long…

 

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