With the access to credit now tighter than ever the Australian property market is facing a downturn in buyer activity, auction clearance rates and subsequently prices.
One segment of the property sector that could potentially be hit hard by the changing market conditions is the “off the plan” market, specifically those developments that are due for completion and settlement will be due in the coming months.
Speculative buyers who purchased 2-3 years ago, previously looking to ride the wave of double digit capital growth, are now faced with a lending landscape where the market is no longer buoyant and minimum loan requirements with the banks have significantly changed, severely impacting borrowing capacity and leading to a potential blowout in settlement defaults.
Should an owner become distressed, forced to sell and accept a loss on their resale, that sale would then create a pricing precedent that would then underpin the values in the building. The property would then be used as a benchmark by lenders for the other units in the block; one low sale could create a domino effect and could affect subsequent settlements across entire buildings and new developments.
“…one low sale could create a domino effect and could affect subsequent settlements across entire buildings and new developments.”
This may not just affect individual home owners but the developers of these buildings as well. Throughout Sydney we have already seen a number of large developers fail to meet their pre-sale targets and as a result some have been forced to sell development sites where ground has yet to be broken.
However a downturn in the new dwelling sector may not be entirely catastrophic, should supply in this market fall short or be deemed high risk, purchaser’s attention could shift back to focusing on the existing dwelling market. An injection of buyers into the $500,000 – $2,000,000 apartment range could result in stimulation through to higher price points as these owners could have the opportunity to upsize given the growth in their current property.
One point that is always important to remember is that the property market is cyclical, with gains and losses that affect every commodity based market. Lighthouse markets like Sydney are simply facing a correction that should soon pass, as population growth and the banking industry’s thirst for profit will eventually stabilise our beloved bricks and mortar.