Sunday, October 05, 2008

The Cost of ALP Gov: Property Bust Looms

by Jim Tsolakis
The world wide credit and financial crisis will have an impact in Australia. All the positive talk is good, but the reality is that people will lose (and have lost) money, corporate profits will slide , unemployment will increase and house prices will come down.

Banks have now begun to ration credit and to tighten credit criteria. Borrowers will need larger deposits, and serviceability will go to a maximum of 30% of post tax income. This means that home buyers will not be able to borrow as much as previously. Lo Doc loans (self employed) are almost dead now.

Valuers have started taking a very conservative, non-bullish approach to valuations, resulting in valuations coming in lower than buy prices. Prices over the past 10 years have increased 3 times as fast as other booms and this is unsustainable.

As real incomes fall as we enter a slowdown, more people will need to sell their properties as they will not be able to afford them, for one or other reason.

Given all of these factors, and as David Kosh wrote in the paper today (SH Sunday 5th Oct 2008), it is common sense that property prices will fall. In the US, the predictions are 50%; in the UK and Europe about 30%. To bring property back to a realistic property to wage ratio - expect a fall of at least 30% over the next 12 - 18 months in Australia. All locations will be affected, particularly overpriced coastal locations, and poorly built apartments in urban precincts. - the boom in Fairfield ended in '04 and prices have gone backwards since. That should continue. - ed.

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