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I’m sure those here and abroad are reading a lot about the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry currently taking place in Australia. Financial planners fainting under oath, bankers admitting they lent money to people they knew could never repay it. There are horrendous stories, none of them nice.
Are the banks to blame?
Sure, there have been some unscrupulous practices. However, we also need to make ourselves fully aware of what we're signing/getting into and the potential worst-case scenarios. You simply can't just stick your head in the sand. In general, If it sounds too good to be true, it is!
Always remember - banks are businesses. BIG ones. They exist to give healthy share price returns and dividends back to their shareholders. My POV is the banking royal commission is long overdue. The fact a spotlight has been shone on their lending practices and the mortgage broking industry is great, weeding out the bad eggs that only have their self-interest and commissions at heart.
On the ground, we have seen the banks really tightening the screws of late. That’s not to say our clients aren’t getting loans, however, there is a lot more rigour and explanation on spending required and the process is taking longer. Ultimately, the bank is ensuring you can afford to repay the mortgage in the good times and the bad, so be thankful for the extra checks ;)
So when this is all said and done, what does it mean for the price of Australian property?
If and when home loans are harder to get this will affect the demand levels with potentially fewer people buying - we see this as more of a problem for the investor market. It’s now more important than ever to do your research on all markets intimately from a macro to the micro level and know the best property to purchase within those markets. If you’re buying an investment property think about the person that would buy this property from you, make sure it has owner-occupier appeal or can do with a smart renovation.
Australia is home to a large property market with each capital city and regional area at different stages of the property cycle. For growth areas still in a rising market, capital growth of 5% - 10% and rental yields of 4% - 5% is achievable. The media reports are a market generalisation. If we use Sydney as an example, from a macro view the whole of greater Sydney has slowed down (a decline of 3.4% YoY). If we break the city down into micro markets, a suburb like Paddington, in the East, still has busy open homes, however, properties are selling prior to auction and properties that do proceed to auction typically only have 2/3 bidders. Values in Paddington have increased 6.98% YoY. Homes are still selling for fair market value and remaining solid. Compared to the Sutherland Shire region (30kms from the Sydney CBD) where on average prices have declined by 4.2% YoY, with fewer people attending opens and many homes passing in at auction.
If you’re thinking of purchasing your family home or an investment property and unsure when’s a good time or what’s the next best step, don’t hesitate to get in contact. Milk Chocolate was founded seven years ago by Richie Ragel and Michael Cleary, to purchase residential and commercial property in Australia on behalf of our clients, looking for a home or investment property. To see how we can help you get in touch here.
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