B Invested

WEEKS AWAY FROM A PROPERTY MARKET CRASH?

Did you read the most recent doom and gloom prediction of a property market crash? According to US think tank, ISSA, Australia has under six weeks to change banking policies for overseas investors and avoid a market crash and possible recession.

 

In the centre are overseas investors, mostly Chinese, who have purchased off the plan properties in Australia’s capitals. ISSA says, the recently tightened lending restrictions have made it more difficult for foreign investors to settle on their properties. This will drive down the value of these off the plan (OTP) properties, and make the settlement process even more difficult for other investors.

 

Meriton founder, Harry Triguboff, has also claimed a “very significant” number of Chinese buyers are failing to settle their OTP purchases. This was a quote the media was all too happy to throw into the “property crash” fire pit.

 

Although there may end up being some turbulence in this market, I don’t believe this will pull the plug on the property market altogether.

 

WHAT WILL AN OTP PROPERTY MARKET CRASH MEAN FOR THOSE WITH WELL-BALANCED FOUNDATION PORTFOLIOS?

For investors who have minimised risk while building well-balanced property portfolios, a downturn in property prices won’t have them squeezed into a corner.

 

A well-balanced foundation portfolio of blue collar, bread and butter properties will be insulated from a downturn in the new apartment market. Bread and butter properties have a broad appeal, meaning they are always in demand.  They are already good value so they don’t have much downward price elasticity.

 

WILL DEVELOPERS GO UNDER?

It is worth remembering that if foreign investors fail to settle, the developers aren’t necessarily going to go under. They will still be retaining the 10 per cent deposits of those investors who have defaulted. This means if they need to sell the apartments at a 10 per cent discount, they will not lose any money on the deal.

 

Also, in places like Sydney, there are countless buyers just waiting to pounce if property prices drop. So, if they do, they won’t stay down for long.

 

HOW WILL EACH MARKET FARE?

 

GOLD COAST AND BRISBANE
I don’t see either of these markets being hit by a drop in OTP prices. Metro Queensland has still not recovered after the GFC and prices have not yet boomed. We are continuing to actively source properties in this area.

 

SYDNEY
While investors should buy with caution, I don’t really see the Sydney market getting hit in any significant way. Sydney is still playing catch up in terms of supply and demand, and despite the huge number of new construction, it will still remain short of housing in years to come.

 

MELBOURNE
This is a market that has the potential to get hit and experience an OTP property market crash due to the huge number of new developments and a potential oversupply of high-density housing here. This is one reason why we’ve not been very active in this market recently.
In summary, this is mostly just a lot of hot air and an even hotter media headline. Yes, a lot of foreign investors will need to default. However, anyone who has followed a sound strategy and built a well-balanced foundation portfolio shouldn’t be worried. Read more about building a recession-proof property portfolio here.

 

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