Property buyers waiting to settle on off-the-plan projects are at serious risk as the investor lending squeeze continues, prominent property forecasters have warned.
Recent announcements by the Australian Prudential Regulation Authority (APRA) and the banks, which aimed to slow down investor lending activity, could significantly affect the off-the-plan apartment market, BIS Shrapnel’s associate director Kim Hawtrey warned on Thursday.
“These are quite stringent changes to landlords. I think it’s fair to say that the lending boom to landlords has peaked. And we've also seen ASIC cracking down on interest-only loans, which have been a crucial component of this housing cycle – the interest-only lending which has grown 80 per cent since 2012."
Hawtrey added: “Now this credit squeeze on landlords will impact mostly on attached dwellings, on apartments […] and we’re at an inflection point. Some of those who bought off-the-plan might get a nasty surprise in six or 12 months when they discover that finance is less available and more expensive, and we may have some settlement risk problems, which is similar to what happened during the GFC.”
At the BIS Shrapnel Forecasting Conference, the group said the “very significant construction boom” would peak “very shortly” and predicted a median property price fall of four per cent by the early part of 2017.
Dr Hawtrey said the downturn would hit the apartment market first.
“High-density will see the correction first; [it's in] for a sharp correction in Australia and the law of diminishing returns is about to set in. Indigestion in the market is about to set in."
He added: “We believe that the record-high levels [of dwelling commencements] which we’re at are largely unsustainable. And we’re going to see that be the first sector of the market to get the correction.”
Dr Hawtrey said we’re at a “turning point” and the higher lending rates for investors, higher sensitivity buffers and increased risk requirements for the banks could mean we’re entering “the last hurrah” of investor lending.
“It’s been positively rambunctious, the investor lending – there’s no other way to describe it. But pretty soon we’ll find there isn’t the optimism out there any longer,” he warned.
“This is very much an emotional market. The property markets run on emotion and, up to now, we've been running on FOMO – fear of missing out – but at some point we’re going to switch to FOLS – fear of losing your shirt. In my mind there’s no doubt that we’re going to see an impact from the APRA effects on investor demand."