Credit crackdown putting heat on home buyers and developers (Part 2) | 7.30

[Music] multiple bank employees across multiple branches in the Greater Western Sydney area we're accepting false documents in support of loan applications people did step outside they're responsible any guidelines there were unsuitable loans there was false documentation just really inappropriate lending we don't resolve from anything that the Royal Commission has identified we all know that sooner or later interest rates will go up so we're very concerned that bigger problems are going to emerge down the track the banking role commissioned Sean's searing daylight into the darker corners of Australia's property boom it revealed the big four banks lent money irresponsibly sometimes without confirming living expenses or the ability to repay it's easy for lenders banks businesses to become complacent and something like what's happening now particularly on the back of this Royal Commission and in the cooling of housing I think it's a good wake up call the Royal Commission has scared a lot of people it certainly shaken up the big institutions the big banks it's focused and put the light on a lot of areas that need fixing [Music] the Royal Commission's final report isn't due till February but it's already had a chilling effect on lenders the banks under the public scrutiny particularly are moving ahead of the Royal commission's findings and has started to tighten learning standards themselves already that they started testing serviceability much more closely they started looking at verifying income much more carefully as well this is having a knock-on impact because the more banks tighten the more investors and other borrowers become concerned well actually in six or twelve or eighteen months time there has it matter could be worse than what it is now and I might hold off so you're getting it is this story where people are concerned that housing actually this time around could be different you're still building that's it's not without its issues now look this is an example of a site that's been impacted by the the credit crunch on launch we sold about 17 off the plan and now we we might get one or two a month that are coming that are genuine buys that Luke Berry is feeling the pinch of Australia's credit squeeze potential buyers of his off the plan developments such as this one in Sydney's Alexandria find it increasingly difficult to secure the loans they need developers are also under the bank's microscope banks scrutinizing pre-sales they want to understand who your builder ease their send your ability as a developer if you can cover overruns it's definitely a lot harder than it has been in the past the Royal Commission came on top of new lending restrictions imposed by APRA the banking regulator first in 2014 opera asked the banks not to increase their proportion of investor loans by more than ten percent it's been a fairly steady progression over the last three years of tightening up credit improving credit quality quality and trying to slow down that investor part of the market last year a press struck again this time seeking to slash the number of interest-only loans on the bank's books we saw interest only lending fall rapidly to the current extent where we see interest only loans comprising on the around about sixteen to seventeen percent of new loan origination x' previously the banks would assess how much you could borrow assuming a very low level of living expenses but now under the pressure from the Royal Commission and responsible lending banks have been required to verify people's actual living expenses and looking more tightly at their income putting haircuts on things like overtime and bonuses so the borrowing capacity for the typical borrower trying to get into the market now is going to decline materially it's a stretch isn't it yeah fun actually it's it's really a stretch mark and Samantha Burgess bought an apartment off the plan in one of Luke berry Sydney developments in 2016 the couple has taken a double hit bitten by title ending and the fall in property prices initially they were told they needed a 10% deposit on their one point six five million dollar purchase the bank pulled out of last minute and we had to find another Bank when it came time to settle in August this year they were told they needed a 20% deposit on a property now valued at more than $300,000 less and their ability to repay came under intense scrutiny when you committed to this property of the bank was happy to give you the money absolutely there was no question at that point in time that there was an issue and then things changed absolutely the and that that's what that's what some was really hurt is what we've had to go through since then my whole salary goes to the mortgage and even just getting that 20% together it hadn't been for friends and family coming to our age we wouldn't be we wouldn't be here now so you almost couldn't settle no no we're on the verge of losing deposit and losing losing the property we're already seeing a lot of evidence that that off the plan market particularly for investment grade stock is seeing a fairly large proportion of off-the-plan valuations at the time of settlement our valuing at a value that's that's lower than the contract price during of the rising boom it was easy to make money he bought off the plan with a relatively small deposit of around 10% and when you got to settlement you've made a big gain and you could even flip it quite quickly and make a lot of money but I think those people are gonna face a material problem in the next 6 12 18 months because there's just this record pipeline of dwellings under construction right now as of June this year there were more than a hundred and fifty-six thousand apartments a record number being built around the country vastly more than the number of new houses there's no doubt that the last 12 months have seen a massive decline in off-the-plan sales the view from Luke Berry's Waterloo development reveals a Sydney skyline seemingly propped up by cranes on apartment construction sites so yeah you got me return your move ACK you've got EU want a crown but of many many of these off the planned developments going to be in trouble it'll be a large number that will be under enormous financial pressure in the next 12 to 18 months the impact significant you know usually you would have confidence of selling one or two a month and at the moment it might be one every three months so you were seeing a significant slowdown by catering to wealthier owner-occupiers Luke berry hopes his developments can survive the sharpest property downturn since the global financial crisis there's a lot of projects that won't start and and that that's because they're not going to get enough sales to achieve their funding requirements I even think that projects will halt you will have projects with a big hole in the ground that again can't get momentum so it's having a serious chain reaction for the industry and and I can see that's going to happen for the next 12 months until people you know work out their pathway on how they're going to survive this credit crisis I think for investors this is clearly a credit we're not seeing growth for investors growing at all at the moment this downturn is very different and the big reason for that is the catalyst of the downturn comes back to credit availability and regulation is is what's driven this downturn concern is mounting that the credit crisis could spread to the broader economy if you look at the system as a whole it's definitely more of a squeeze than a crunch we are starting to see it broaden out a little bit more if you look at housing finance for owner-occupiers that is now starting to to soften a little bit the interventions from the banking regulator APRA were designed to take the heat out of the investor led property boom this year the banking regulator moved to scrap its 10% limit on investor lending the hope is the downturn in housing can be contained and that's the hope that we can somehow muddle through a decline in house prices that doesn't impact the real economy generally banking crises economic recessions started by a downturn in the housing market that's the playbook in history so we're trying to generate an Australia something different which is a reduction in house prices without a doc on impact to the economy if we can do that we're all winners but the probability of that happening is very low in my opinion in terms of median household wealth no country is richer than Australia but compared with the rest of the developed world our property prices are now completely divorced from the wages we earn the household savings ratio now is at a decade low and people's willingness to keep spending in an environment of falling house prices is going to change in my view and I think the outlook is more subdued for many years going forward where households adjust to the realization that house prices just don't go up forever they actually can fall quite a bit the rules of Australia's property game have changed it remains too expensive for many and some with mortgages are becoming resigned to never paying them off i don'ti can't personally keep up with it the the wage growth is quite stagnant flight attendant Darren Thomas makes a little over $100,000 a year but has managed to buy and sell several family homes in Sydney's Harborside suburb of Mossman you've done well out of property but do you feel wealthy no I don't think I feel healthy that's that's the scary part is that you have the trappings of wealth but not the real wealth and the knowledge of that the more you will never be paid off with about ten years left in the workforce Darren can't see how he'll ever pay back the more than six hundred thousand dollars he still owes on his family home my father's generation he could actually see a finish line and say okay well I will pay off my mortgage by whatever dates however I don't see that finish line I don't ever think I'll see that finish line Australia's property pain may intensify if the Reserve Bank raises interest rates for the first time in eight years household debt obviously is very high at historic highs at almost 200 percent of disposable income but interest rates are very low in a historical context this time is different around interest rates it was very clear that through the nineties in 2000's particularly GFC the primary driver of the house price appreciation was the secular decline in interest rates it's possible in a really bad scenario the RBA has to cut the cash rate further but that's unlikely unless things got a lot of worse thanks very much happy to be here tonight last week the Reserve Bank signaled it is prepared to cut the cash rate further if the economy takes a hit this is to some extent uncharted territory if interest rates went to ten percent over the next couple of years people couldn't handle that it would wipe people out like a tsunami you

Channel: ABC News In-depth

Views: 162,410

Rating: 4.7582846 out of 5

Keywords: Australia, housing, market, credit, business, development, interest rates, RBA, Geoff Thompson, Alex McDonald, cash rate, global financial crisis, investors, property, real estate, housing prices, property prices

Id: LIYhJ0VifKI

Length: 13min 11sec (791 seconds)

Published: Tue Dec 11 2018