Why even millionaire investors are struggling to buy a house: Plunging house prices and tighter banks are creating the ‘perfect storm’ for the property market
- Millionaire property investors are being hit with higher mortgage repayments
- Banking sector crackdown on interest-only loans hit Sydney, Melbourne values
- Digital Finance Analytics’ Martin North said this was a ‘recipe for a disaster’
- CoreLogic property data group said stricter lending rules were a ‘perfect storm’
Millionaire investors are struggling to buy property with the banks imposing tighter lending rules as Australian real estates values plunge.
The banking regulator’s crackdown on interest-only loans has dramatically pushed up monthly repayment levels, by as much as 40 per cent.
Digital Finance Analytics founder Martin North said millionaire property investors with a vast real estate portfolio were being hit particularly hard, as rental yield also weakened.
Millionaire investors are struggling to buy property with the banks imposing tighter lending rules as Australian real estates values plunge (Sydney’s Piper Point pictured)
‘It isn’t just the mum and dad property investors with a single property that’s exposed,’ he told Daily Mail Australia on Wednesday.
‘We’ve now got a situation where there are a lot of people with multiple investment properties who are now cross-leveraged with capital growth now going backwards.’
Sydney’s median house price has plunged by a record 13.7 per cent peaking in July 2017, CoreLogic real estate data showed.
The Australian Prudential Regulation Authority’s crackdown on investor loans during the past 18 months has also hit the Melbourne market with values there down 10.6 per cent in the year to January.
Digital Finance Analytics founder Martin North said millionaire property investors (stock image) with vast real estate were being hit particularly hard, as rental yield also weakened
Property investors had, for decades, relied on negative gearing tax breaks to offset losses from renting out properties.
Australian house rules
Sydney, down 10.9% to $902,786
Melbourne, down 10.6% to $740,425
Brisbane, up 0.1% to $540,750
Adelaide, up 0.9% to $464,584
Perth, down 5.3% to $465,120
Hobart, up 7% to $494,810
Darwin, up 2.3% to $502,023
Canberra, up 4.3% to $668,469
Source: CoreLogic detached median house prices in year to January 31
The banks, however, are no longer assuming capital growth will keep increasing, at least in the next few years, and are more reluctant to lend.
This has led to investors being forced to pay both principal and interest, which has forced up monthly repayments by close to 40 per cent as also rental yields have weakened.
‘We had a generation of property investors who thought this was a one-way street,’ Mr North said.
‘We had astronomically high … interest-only loans to investors and this was always a recipe for a disaster.
‘We just allowed this Ponzi scheme to continue.’
Before the banking regulator crackdown in 2017, a staggering 43 per cent of loans went to investors.
House prices in Sydney (pictured) and Melbourne are expected to keep plunging in 2019 and 2020
One-third of loans are still going to investors.
CoreLogic head of research, Tim Lawless, said property prices will keep diving in 2019 and 2020.
‘It’s a bit of a perfect storm in many ways,’ he told the ABC.
‘Rental yields are beginning to weaken or fall while we’re also seeing unprecedented levels of supply coming onto the market, which could lead to further falls if demand softens.’