Investors should be aware of the Australian property silent correction, warns Charlie Jamieson, portfolio manager and chief investment officer, Jamieson Coote Bonds.
According to Jamieson, this trend was further supported by the following moves: the rise of interest rates by the US Federal Reserve in September, the works of the Royal Commission and domestic credit availability, as well as the tightening of bank lending.
At the same time, the Australian dollar had enjoyed a counter-trend bounce, trading above 73 cents, before pulling back again into a negative territory. Also, a mild fall in the AUD would help stabilise the economic fallout from the change of environment combined with pockets of housing stress.
Jamieson also said the tightening of bank lending on investment properties was having a significant ripple effect through the Australian apartments market.
“Off the plan buyers are failing to settle in droves on completion of their purchased apartments due to the lack of banking finance. Some estimates of completed apartment projects unable to settle in Brisbane, Sydney and Melbourne are running as high as 40-50 per cent,” he said.
“Failing to settle a legally binding contract is no small problem, placing leveraged developers under financial strain who in turn are potentially forced to flip their newly finished stock into a falling market to satisfy their own loan agreements.”
Jamieson warned that the obvious chain of events from here could create a wave of forced sellers into a market that is only just beginning to correct after a period of vast outperformance.
On top of that, he said the Hayne Banking Royal Commission might become the tipping point for Australian financial asset and property performance after a long period of easy credit availability globally, coupled with weak domestic loan due diligence and generous loan-to-valuation ratios.
“The party has come to an abrupt halt for Australian property,” Jamieson said.
And this might lead to significant implications for Australian banks who were highly leveraged into property lending as their main source of income and profit growth, he said.