Welcome to the Spring edition of our newsletter, where we aim to keep you informedand engaged.
Credit appears to be drying up
At the start of the quarter, we saw a flurry of enquiry and in our conversations with Brokers many have commented that their clients have been pushed away from their current lender, with a number of borrowers given deadlines to refinance before higher interest rates are applied. Brokers are under pressure in assisting with refinances because there are fewer genuine offers/options on the table that are to their clients liking.
Many borrowers don’t have sufficient equity in their properties to provide refinance options to their liking, which becomes difficult for brokers when faced with the fact that a number of banks/non-bank lenders have substantially tightened their lending parameters, or have had funding lines pulled entirely.
We have noticed a steady decline of enquiries towards the end of the quarter.
Who are the most affected?
We see the current state of the economy as two steps in nature and the
least affected in our mind are:
- Low-income earners – who have always suffered, and no matter what happens, will continue to struggle (maybe a little worse) with increased cost of living pressures; and
- The high-net worth individuals, who have sufficient cash to make purchases (even houses) using cash.
The most affected are the middle-income earners, who are aspirationally stretched. They have bought the investment properties, the dream house, the holiday home, the new cars, the jet-ski and other toys, all on finance, and are now concerned about fixed rate loans coming off, into the face of 10 straight interest rate rises. What was originally a circa 2.00% pa loan, is now far more expensive at between 6-8%pa. A lot of middle-income earners were not prepared for this.
We do think that the effects of the “fixed rate” cliff are still not yet fully understood and are yet to be felt, once savings have been completely eroded. RBA decisions on further rate rises will only exacerbate issues developing on this front.
Property Market Remains Segmented
There is certainly a decrease in demand for vacant land, yet completed house and land projects continue to sell. Fewer people are willing to take on construction risk.
The National Construction Code changes that came into effect from May 2023 will hurt NSW new homebuyers and investors, as it remains the only state to not grandfather in the changes over the next 12-24months. The changes to the NCC require compliance with new energy efficiency ratings and all-ability access (think wider doors and lower benchtops) increasing the cost of new project home by up to$40,000 and decreasing demand from new home buyers and investors.
Commercial property has certainly been impacted and the higher interest rates on levered investments has meant that yields (and therefore cap rates) are affecting prices and sales are softening, amplified by the demand issues resulting from the WFH phenomenon. There are signs that Regional Lifestyle properties are suffering a pandemic valuation reversal, with many workers being forced to return to or be more present in their head office locations.
And the Victorian state government is really trying to address housing shortage issues and encourage the construction of new dwellings, by imposing a state-based tax on windfall gains recognised on properties benefitting from the rezoning of land in the State’s green wedge development corridor.
Dr. Phillip Lowe
We applaud him and wish him the best on his next calling.
Maybe he missed the mark by making the call that interest rates would remain steady until 2024, however, he was and remains, a rational thinker and steady hand.
As we look ahead, Michele Bullock appears to be of the same ilk as Dr Lowe, with the RBA deciding to hold rates in its first meeting under Ms. Bullock’s Governorship in the hope of steering the Australian economy to calm waters.
Where to from here……
One can only guess. But be assured that we will be open, ready to do business and on the end of the phone, to discuss your scenario.
Let’s talk Residential
Since the start of 2023 we have seen residential property values increase despite the RBA rate increases earlier in the year and a slowdown in consumer spending within the economy.
We continue to hear from agents at the coalface around the country there is a shortage of listings which appears to be supporting property prices in the market. This is shown in the ANZ CoreLogic Housing Report September edition stating a 4.9% increase in Australian home values since February.
There is some segmentation as a three-speed market plays out with the entry-level ‘affordable’ housing market generally performing strongly as there is a wider pool of buyers who can still service a mortgage.
Simon Salotti LREA, QPIAa
Head of Property
The sector of the market being most impacted by the rate rises is among the larger family homes in the $2 million to $5 million price point where buyers needing a mortgage are less likely to meet the servicing requirements from banks creating a forced shrinking of demand.
However, the high-end luxury properties appear to still be achieving record prices attracting overseas or high-net-worth buyers with cash who aren’t as concerned with interest rates.
Sydney and the Gold Coast continue to perform well, along with most of Southeast Queensland buoyed by increased infrastructure spending gearing up for the Olympics, while Melbourne has been relatively sluggish by comparison.
We are seeing the rental market remain at all-time highs with the low supply of rentals continuing while investors continue to sell off their properties which could risk a further rental shortage. Attending the Urbanity Conference earlier in the month the affordable housing and build-to-rent sectors are seeking to offer solutions to the Australian housing crisis but need to overcome both funding and government planning challenges for them to be truly effective.
Time will tell exactly how serious the government at all levels wants to be in providing solutions to the shortage of housing as it becomes more of a political hot potato.
Let’s talk Commercial
On the commercial side, yields are generally softening with fewer commercial transactions taking place and we anticipate this may continue in the months ahead. Agents are still confirming the industrial sector remains robust supported by strong rents continuing to increase underpinned by a lack of supply and a national vacancy rate below 1%.
On the retail side, we are hearing of slowing demand and expect this sector to be susceptible to economic headwinds, while the office sector remains healthy within Southeast Queensland, but showing signs of softening in most other capital cities and regions as businesses reassess their office space needs.
We are still seeing a slowing in new development commencement due to the cost of construction, slow approval processes and sales rates. Developers and agents have advised that any price rises in the finished product are being soaked up by the cost to build and increased finance costs.
We expect this to continue to constrain the housing supply and be a force of upward pressure on property values into the future.
There’s nothing we love more than be able to share fantastic client success stories – it’s why we do what we do.
LOAN SCENARIO – BAYSVIEW, NSW
|Cash out for investment
(5 months capped interest)
|Residential house (Bayview, NSW)
|Loan application to settlement = 10 days
LOAN SCENARIO – MERMAID BEACH, QLD
(6 months capped interest)
|Apartment block (Mermaid Beach, QLD)
|Loan application to settlement = 14 days (incl val)
The ProLend Process
Contact the team to assist and discuss your scenario, which willenable us to work out initial loan terms in support of yourapplication. This can be submitted directly via the link below.
We are a low doc lender and only request those documentsrelevant to the nature of your loan. Click here to review what docswe will potentially need during the assessment of your loan.
Along with your loan application and the necessary documentation we will begin to assess the scenario connecting with you along the way to remain transparent but also to clarify any details required.
We aim to revert within 24-28 hour to provide you with a letter of offer outlining the terms and conditions of the loan.
Once you’re in a place to accept the offer, we have our legal eagles prepare all the relevant documentation to move forward in settling the loan and releasing the funds.
Funds can be transferred for the borrower’s account within 24 hours of the loan document execution.
We work closely with you throughout the life cycle of the loan and as your loan approaches maturity we get you to the next phase of your finance journey be it re-sale or the exit.
Our teams of relationship managers, credit analysts, property analysts and construction loan officers are experts in their fields and are ready to support brokers and their clients from enquiry to loan completion.