There is an unease in large parts of the residential property market. Such an unease normally triggers a fall in prices.
Deloitte Access Economics’ Chris Richardson picked up the danger signals in the economic statistics, so warned first-home buyers that now might be a bad time to buy. He was roundly criticised. I pick up similar danger signals in parts of the industry itself because rarely has a vital industry for the nation been attacked on so many fronts.
And down in budget preparation land they are planning new attacks with the aim of making it easier for first-home buyers. Scott Morrison, be careful what you wish for.
Let’s step back and look at the current volley of attacks.
The local investors include high-income medical professionals but also the likes of teachers, police and trades people like plumbers. Thanks to bad government in Canberra there is uncertainty about superannuation and people see negatively geared dwellings as a more reliable retirement vehicle. (We will not debate the rights and wrongs of this strategy in this commentary.)
There is no doubt the investor demand was also boosted by incentivised bank staff who pushed interest-only loans to customers with the vigour we now see in electricity marketing.
A friend of mine two years ago bought one investment apartment but was under pressure from his big four bank salesman to buy five interest-only dwellings. This was not an isolated instance so housing loans to investors are dominated by interest-only loans.
But now that whole process is being put in reverse. Banks are severely restricting interest-only loans as part of a major clampdown on investor loans as required by the regulators. Interest rates on investor loans are being increased and residential rate loans are being edged up. And so the forces that drove the “second-hand” market higher are being reversed with some savagery. And at the same time, about every regulator is warning of a bubble.
With all these forces being lined up, dwelling prices should fall. They are being held up by the rising populations in Melbourne and Sydney; the rush of foreign students and tourists and problems developers are having organising finance.
In addition, many believe that the ALP is highly likely to win the next election and with that will come negative gearing clamps. They are making the investments before it’s too late. Rents in most areas are not falling. Those forces will probably stop a significant fall unless there is a major adverse global event or the budget attacks too hard. And if there is a significant fall the whole Australian economy will be affected, so multiplying the fall.
My fear is that the regulators are using weapons to curb the boom that have not been used in a long time. There is risk of overshooting.
I know Morrison wants to give first-home buyers the chance to access superannuation in a limited way. In this market, it’s the wrong move. But at the right time, in my view, it’s a good idea to reduce long-term pension costs. Morrison should keep the weapon in the back pocket just in case the current campaign overshoots and sends prices down.
By Robert Gottliebsen
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