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One Bank Breaks Ranks With New Boom Mortgage

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ANZ is issuing ten-year IO mortgages… What does it mean?

So ANZ has broken ranks with the big four, and is aggressively targeting investors with a new ‘boom mortgage’.

That’s not what they’re calling it obviously. To them it’s just an interest-only mortgages with a ten-year interest only period.

But to me, that says ‘boom!’

From the SMH:

ANZ Banking Group is loosening some of the clamps it put on interest-only mortgage lending in 2017, after pledging to reopen the door to property investors following a period of excessive caution.

The big four lender on Thursday said it would again start offering customers an interest-only period of up to 10 years, up from five years now. It will also allow interest-only loans where a customer has a deposit of 10 per cent of a property's value, where previously it required a 20 per cent deposit.

The changes are a clear signal the bank is trying to spur growth in the housing investor market, where interest-only loans are most popular, after chief executive Shayne Elliott last month admitted it had been “overly conservative”.

It is also the latest sign of a loosening in restrictions on investor and interest-only loan growth, after the Australian Prudential Regulation Authority (APRA) late last year removed caps on these types of mortgages.

“On recent review, we have made a decision to increase our focus on the investor market. The upcoming changes demonstrate our continued appetite in the investor market, whilst ensuring we remain in line with our APRA requirements,” ANZ said.

Latest Reserve Bank figures show housing investor credit growth was just 1 per cent in the year to January. ANZ last month said its housing investor loan book shrank 3.8 per cent in 2018.

The remainder of the big-four already offer IO mortgages with a 10% deposit, so that’s not a huge change. But 10-year interest only periods… that’s pretty aggressive.

I did look into it, and it’s not going to be available to everyone. They’re going to be assessed at a minimum floor rate of 8.25%, which is a very high hurdle to cross. They’re marketed only for high-income professionals with stable jobs.

Still, it’s an interesting change in direction.

Over the past year or so, we haven’t seen any news that has pointed to a looser credit environment. It’s all been about how much tougher credit conditions have been getting.

So this is a real break in direction.

It signals that either

  1. APRA is now willing to back off a bit; or
  2. The banks have stopped caring what APRA thinks

Both are bullish signs for the market.

And if the market recalibrates so that ten-year interest only mortgages are the norm, that will give prices a boost. It increases the amount that people are able to borrow and service, and increases in borrowing capacity mean increases in prices.

So something has shifted here. There’s a break in the weather. A change in the wind.

It’s not exactly clear what it is, but either way it’s a big boost to the market.

Court shock: Govt knew about fire risk for years!

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The Lacrosse ruling sets an interesting precedent… but there are still a lot of unanswered questions.

As someone who does his fair share of developments, I’ve been a little bit concerned about the uncertainty surrounding the ‘flammable cladding’ crisis.

In case you’re new to this, this is the revelation that many buildings across Australia, particularly high-rises, have been clad in a substance that has an unfortunate tendency of catching fire.

The Grenfell tragedy in London is the most famous example, but there have been a number of fires in Australia recently too.

Thankfully no one has died (yet!) but it’s a pretty worrying state of affairs. And at first I didn’t think I had too much skin in the game since I don’t tend to build high-rises.

But then there were the revelations this month that even suburban houses could be affected. From the ABC:

The VBA alert said the certification withdrawal meant nine types of cladding “cannot be relied upon as evidence of suitability”, meaning they would no longer be regarded as compliant with building codes…

The organisation’s vice president, Wayne Liddy, said the affected products were commonly used on small residential homes as well as high-rise apartments, meaning the impact would be felt throughout Australian cities and suburbs.

“It’s very alarming,” Mr Liddy said.

“It affects the industry as a whole. From high-rise to suburban housing.

“It’s not just aluminium composite panel, or ACP, it’s also expanded polystyrene, which is common in many buildings with fewer than three storeys…”

Oh boy. That’s not good.

And a key question is who picks up the bill? You can’t leave the flammable cladding up on the buildings. You have to fix it. But who pays?

We might have a bit of clarity on that with the Victorian Civil & Administrative Tribunal ruling on the Lacrosse Building.

The Lacross building caught fire in 2014, when a single cigarette sent a fire racing up 8 storeys.

The tribunal has found that the builder LU Simon must pay apartment owners $5.75m in damages, but LU Simon can pass that cost on to their architect, their fire engineer and their building surveyor, who were deemed ultimately responsible. From The ABC:

The owners of apartments at Melbourne’s Lacrosse tower in Docklands have won more than $5.7 million in damages in a lawsuit launched after a fire fuelled by flammable cladding caused significant damage to the building in November 2014…

That claim for damages covered the cost for owners of replacing non-compliant cladding, damaged property, additional insurance premiums and “anticipated future losses”.

In a decision handed down in the Victorian Civil and Administrative Tribunal (VCAT) by Judge Ted Woodward on Thursday, LU Simon was ordered to pay more than $5.7 million to apartment owners.

However, most of that money would be paid to LU Simon by the architect, fire engineer and building surveyor who worked on the project, after Judge Woodward found they had breached contractual obligations…

In his ruling, Judge Woodward found the architects Elenberg Fraser had failed to remedy “defects in its design”, specifically designs which allowed the “extensive use” of aluminium composite panels (ACPs) on the east and west facades of the building…

He also found the building surveyor, Gardner Group, breached its agreement with LU Simon by failing to exercise due care when it issued a building permit in 2011 for those architect plans.

Thirdly, he found the fire engineer, trading as Thomas Nicolas, failed to recognise and warn the builder that the ACPs proposed for use on the building did not comply with the building code…

As a result, he ordered that the three parties pay LU Simon a combined total of 97 per cent of the damages owed to apartment owners.

Gardner Group was ordered to pay 33 per cent, Elenberg Fraser 25 per cent and Thomas Nicolas 39 per cent…

Some of the $12.7 million sought by apartment owners is yet to be resolved.

The architecture firm Elenberg Fraser is also on the hook for replacing the cladding, at a cost of $6.8 million for the cost of the cladding’s replacement

So there’s a bit of clarity here, but not a lot of comfort. As a developer, if I’m doing everything right, then I should be ok. It’s the responsibility of the architect, the fire engineer and the building surveyor to make sure everything is tickety-boo.

It’s also great news for people who have bought apartments recently. They’re not going to end up on the hook.

But I’m not sure that this is where this story ends.

Because it has emerged in the AFR that the government has known about these problems for 30 years.

According to fire engineer Jonathan Barnett, Canadian researchers first raised concerns about combustible cladding in a report published in 1990, and testing by the CSIRO in 1995 found that such cladding was a fire risk, but no formal reports were published in Australia until five years later.

State and territory building regulators were made aware of fire authorities’ concerns about the use of combustible cladding in 2010, as was the Australian Building Code Board. However, in the case of Victorian regulators, they did not issue any warning about the use of combustible cladding until June 2015… which was more than six months after the fire in the Lacrosse building.

Hmmm. Smells like liability to me.

Westpac is giving away houses?!

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Westpac is in the courts already, with a class action on the way. The mortgage market is getting crazy.

This could possible be the opening chapter in a whole world of crazy.

There’s a class action being brought against Westpac for breaching their responsible lending obligations.

Look out!

Westpac is facing a class action for allegedly giving loans to people who couldn’t afford to pay them back.

The class action, in the Federal Court, is the first against one of Australia’s big four banks since the banking royal commission delivered its damning report.

Maurice Blackburn principal lawyer Ben Slade says Westpac will be accused of breaching its obligations to protect customers from financial harm.

“Westpac is required to comply with strict obligations which are specifically designed to protect consumers from irresponsible lending and the risk of financial hardship,” he said on Thursday.

“This case will seek to prove that Westpac failed to comply with these obligations and that this failure caused substantial losses for many consumers.”

The case could involve thousands of home loans issued after January 1, 2011.

The central issue here is the use of HEM – the Household Expenditure Measure.

What we learnt in the Royal Commission was that many banks were using benchmarks to calculate serviceability, rather than looking at people’s actual expenses.

One benchmark was the HEM – which was apparently pretty much set at poverty-line levels.

What that means is that if your actual living expenses were more than the HEM (and unless you were on the poverty line, they probably were), then the bank was willing to lend you more money than you would normally get.

That sounds great, but the flip side is that from the regulator’s perspective, the bank was giving people bigger debt burdens than they could reasonably be expected to carry.

That is, they breeched their responsible lending obligations and put people into undue hardship.

And that’s what Maurice Blackburn are going to argue.

I actually didn’t think it would come to this. It’s hard to imagine anyone who bought a property in 2011 now regrets the decision.

But that’s with prices at their current levels.

The further prices slide, the more people might start to regret their decision.

And if they slide far enough, people might suddenly feel like they actually would like a way out of their mortgage.

Enter Maurice-Blackburn.

Now I don’t know what happens if you prove that the bank gave you more money than you should of got.

Do you just write off the mortgage and call it even. “I’ll just take the house thanks. I’m not greedy.”

It could happen.

Or does the bank owe you compensation? Do you just get to pay the amount you should of received and the monthly repayments that entails?

But then who picks up the difference?

And where does this end? Right now Maurice Blackburn are going after Westpac because we know that Westpac were using benchmarks (ASIC is currently in court proceedings against them.)

But you can be sure that they were not the only ones. If Westpac was doing it, it was probably rife across the majors but also across the smaller players as well.

Maybe there’s hundreds of thousands of active mortgages that could be up for review.

Crazy-town.

I’ve got no idea how this plays out. But if you’ve got a mortgage with Westpac, I’d be watching this one closely.

Does Macquarie Bank have an ulterior motive?

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Mortgage brokers have started campaigning to save their industry, but they’re in a tricky position.

Macquarie Bank has stepped up to defend the role of mortgage brokers.

Isn’t that nice of them?

Obviously they don’t have any ulterior motives. They just felt an affinity for those plucky little underdogs, being a plucky little underdog themselves.

The Age gave us an insight into how a recent conference call went:

Macquarie Group chief executive Shemara Wikramanayake has backed mortgage brokers' claim that they are important for competition in the home lending market but says how they get paid may need to change.

As Macquarie reaffirmed its guidance for a record profit, Ms Wikramanayake said it was “important” that brokers continue to operate, given their role in distributing loans for smaller competitors to the big four, such as Macquarie.

The royal commission last week recommended scrapping brokers' commissions, which are paid by banks, and replacing them with an upfront fee. Brokers have vowed to fight the proposed change, which has also divided the banks.

Macquarie has about 2 per cent of the $1.6 trillion mortgage market. Ms Wikramanayake said the bank used brokers “principally” for selling loans, and 57 per cent of the market also used the service of brokers. While there may be changes in how brokers were paid, she said it was important the industry continued to operate.

“So today mortgage brokers do provide a valuable service, we presume, to customers just by the fact that they are predominantly used by the customers,” Ms Wikramanayake said.

“We think they do provide competition and they do provide a service and it’s important that [we] try to continue [this].

I love that little ‘presume’ tucked in their. “Mortgage Brokers provide a valuable service. I mean, we presume they do, because we have no idea what their value proposition to customers actually is, but people keep using them. LOL.”

But what Macquarie does know is their value proposition to Macquarie bank. To MacBank, brokers are front line sales staff.

Try walking into Macquarie Bank in Sydney and asking about a Mortgage. No chance. In fact, unless you enter via the heli-pad, I don’t think they even let you into the building.

But Macquarie has no branch network. It has no branch managers and lending specialists in non-threatening chairs. They rely on mortgage brokers to sell their products.

And this is where it gets tricky for mortgage brokers. Really they should be hitting up banks like Macquarie who have no alternative distribution channels, and getting them to go into bat for them. Get them to stump up for the costs of an advertising blitz.

But that just then proves the point that consumer groups are trying to make. They argue that banks have just outsourced their front of house services to mortgage brokers, and mortgage brokers are simply the retail to the banks’ wholesale.

That is, they are working for the banks. They are paid by the banks. They are working for the banks.

And not, unfortunately, the customers.

Getting banks who desperately need your service to pay for your political campaign just reinforces this impression.

Awkward.

Sadly, mortgage brokers really need a grass-roots campaign. They need consumers to come out lobbying for their brokers.

But how many people have any connection to a mortgage broker? I churn through a lot of properties, so I have a broker on speed dial. But for most people it’s just a one-off service you use every 15 years or so.

I find it hard seeing people taking to the streets about it.

Mortgage brokers do provide a valuable service, and I really think the industry needs them. The market will be much worse off without them.

But they’ve got to find a way to distance themselves from the banks. They need to find a way to clearly demonstrate their value to the public – even if that means educating a bunch of people who have no idea how the market actually works.

It’s going to be tempting to get the big money guys like Macquarie to go in and bat for them, but I really don’t think it helps their cause.

Drop the ‘doomsday chatter’ – Goldmans

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Goldman Sach busts some of the doomsday hype

Sentiment matters. It’s just one of the realities of the market. Sometimes mood just matters more than fundamentals.

Right now is a classic case in point. Sentiment is low. Ordinary investors are a bit bummed. People are worried about a crash…

But how much of that is based in reality?

Not much, according to Goldman Sachs.

The Australian arm of the old Vampire Squid reckons that market sentiment is currently running miles ahead of reality.

Exhibit one in that argument is this chart here. This is the number of Google searches for the term ‘housing crash’ in Australia.

As you can see, they spiked towards the end of last year. There’s unprecedented levels of searches for that term…

(Though, are people really getting their read on the market by punching ‘housing crash’ into Google?!? I think it says more about how sophisticated most property owners and investors are than anything. The fact that you are reading this blog puts you miles ahead of the crowd.)

Goldman Sachs is calling this phenomenon “doomsday chatter” and they reckon it’s just a bit silly.

“In our view, while there is a kernel of truth to many of the popular narratives, a close inspection of the data suggest most are overly negative.”

Their read on the data still suggests that things are tracking along ok. They are also keen to put to bed the idea that there is some kind of ‘credit crunch’ in effect.

“The evidence that supply-side credit tightening is significantly worsening is not compelling to us…

 “The value of finance approvals to investors in NSW and Victoria continues to fall sharply, but is little changed elsewhere; while the number of finance approvals to owner-occupiers remain fairly elevated in NSW and VIC (albeit a bit weaker) and mixed in other regions…

“In our view, this remains broadly consistent with our earlier view that the primary driver of softer loan approvals over 2018 has been lower demand from investors – driven by a normalisation in expectations for capital gains in Sydney and Melbourne.

“Tighter scrutiny of mortgage applicants' expenses was slowing approval times, but the effect was likely to be temporary…

“This slower processing period may well take a few months to wash through and cause some temporary distortions in the interim…

What is interesting to me is that given all the dark clouds supposedly hanging over the property market – the credit crunch, APRA, the interest only reset, the Hayne Royal Commission etc., the only one they’re really worried about is…

… immigration.

Yep. That’s right. The only downside for the property market is potential cuts to immigration.

“In our view, the much more material risk to both the underlying supply/demand balance and the level of construction activity would be a significant reduction in population growth.

“We note Prime Minister Scott Morrison recently proposed to reduce Australia's annual permanent migration quota by up to 30,000 per annum (or about 15 per cent) and redirect new migrants away from Sydney and Melbourne.

“But while formal changes are yet to be made – and the impact on population growth of this proposal would likely be negligible given (i) actual permanent migration is already below the current cap, and (ii) the measures don't address the large amount of temporary migration – the increasing political focus raises the possibility of a more substantial policy shift in the future.”

So they’re kind of saying that immigration is the only possible downside risk for property, but there’s very little chance of anything substantial happening on that front…

So what? All good then? That’s what we’re saying?

Yep. That’s what we’re saying

Hayne: what it means for property… and capitalism!

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Hayne says the problem is capitalism. The solution? Let’s all move to fairy-land.

Ok, so I’ve been digesting the Hayne Royal Commission report over-night, trying to make sense of it all.

But there’s something weird at the heart of it all.

I’ll get to that, but first, what are the implications for the property market and property investors? Here they are in a nut shell:

1. No big changes to the industry

This is being billed as a reset of the financial industry, but I don’t see any major changes here. The banks aren’t having to break up their vertically and horizontally integrated business models (e.g, where a bank owns a funds manager that recommends the banks products to its customers), and apart from doing more to comply with the law, the banks aren’t being asked to change their business models in any real way.

2. No changes to the law

Hayne went to lengths to point out that he didn’t see any need to change the existing laws, only to make sure that the laws were being properly and prosecuted.

3. Regulators need to pull up their socks

On that front, the regulators need to do more, and he wants to see them being less shy about prosecuting banks under the law. Remember how ASIC dealt with the Comminsure scandal by asking for a $300,000 community contribution rather than issuing an $8 million fine? Hayne probably has a point.

4. No changes to the credit environment

As Hayne uncovered more and more dirt on the industry, the banks started tightening up their credit standards. The fear I had was that Hayne would push this further and harder, and credit would slow even more. This hasn’t happened. There’s no recommendations here that are going to crimp credit.

That said, there’s nothing here that relaxes credit either. The banks have already started moving away from income and expenditure benchmarks in favour of looking at customers actual income and expenses, and Hayne wants this to continue.

For property prices, I reckon Hayne is neutral, and given the banks’ history of successfully watering down reforms, possibly price-positive in the long run.

5. Mortgage Brokers hung out to dry

Hayne recommends banning trailing commission on mortgage broking, and moving the mortgage broking industry to a fixed fee system. Many mortgage brokers reckon this will kill the industry, and they’re probably right. I think your owner-occupiers and mum and dad investors will probably just go back to walking into whichever bank has the cuddliest mascot, rather than paying a couple of grand upfront. Banks will go harder on these customers and they’ll pay more in the long run (while the customers will pat themselves on the back in the short run – look how much I saved, Honey!)

I can see there is a mis-alignment of incentives with trialling commissions paid by the banks, but killing the industry without putting in place something to help your average punter navigate the complex world of mortgage finance is a recipe for ripping people off.

6. Capitalism is a flawed system

This is where we get to the bit where it’s just a bit weird for me.

Hayne reckons there’s a problem with the banks’ “culture”. Not “culture” in the sense of their rock art and quixotic dance rituals, but culture in the sense that many people in the industry seem to be motivated by money.

“Why did it happen..? Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?

“…Banks searched for their ‘share of the customer’s wallet’. From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.”

Staff were rewarded by reference to profit and sales… what a highly unusual business model that is. What are freakishly strange culture to have.

I mean, you wouldn’t see that in my business. My staff are motivated by my witty company-wide emails and by premium biscuits in the break-room. Money never comes in to it.

But seriously, what are we even talking about here? Yes, capitalism has its flaws. When people are motivated by money, sometimes people with low ethical standards do things that people with higher standards wouldn’t do. There’s nothing new there.

But are we really suggesting we should remove the profit-motive from banking? And if so, why stop at banking. Let’s just make profit illegal altogether. Let’s move to an economy-wide biscuit-based incentive structure.

Let’s all move to fairy land.

But no, I actually think this talk of culture is a squib. It allows us to feel morally righteous, while doing nothing to address the fundamental issue – the disproportionate power that has been allowed to accumulate in the finance sector, and the captured, wet-lettuce approach to regulation.

But no, we’re not tackling that. We’re talking about some fantasy culture, where no one cares about money.

Off the planet.

Three traps for investors in 2019

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Looking ahead, there’s going to be a couple of key challenges next year…

Ok, the year is almost done and dusted. I’ve already started wearing my boardies into the office. My work-ethic has already switched over to margarita mode.

But let me drop a few thoughts on what 2019 has in store for us, and what I reckon the key themes will be – and what the key themes guiding my investments will be.

Theme 1 – Cashflow is King
With growth tapping out in 2018, and the Royal Commission and ongoing regulatory pressure meaning that we’re probably looking at a slow start to 2019, investor focus is going to shift further towards yield and cashflow.

On top of that, if Labor gets in at the next election (which I reckon they will if they can keep Bill Shorten’s profile low enough) then we’re probably looking at them delivering on their promise to reform negative gearing. That will change the yield equation even further, and put an even greater premium on cashflow performers.

That might shift the focus of investor activity out of the capitals (where average yields are ordinary at best) towards higher-yield regions.

This could have some interesting effects. Investors aren’t used to hunting for yield. There might be some adjustments, and investors will need to be careful.

For example, if you go to one of the data providers and look at their Top Twenty Yield Reports for example, then you’ll find the cashflow capital of Australia is Cairns. Right now, average yields on apartments are around 8%.

So investors are going to pile into Cairns, right?

Well, I hope not. I mean, there might be good manufactured growth plays on offer, but the yields equation is a trap.

I always thought the high yields in Cairns were to compensate investors for lousy growth – prices have been practically flat for decades.

But that’s only part of the story. Take a look at this property here for example. It’s an attractive unit in the premium suburb of Palm Cove. They’re taking offers over $230,000, and it’s currently tenanted at $320 pw.

Those numbers are pretty wow. That’s like a gross yield of 7.5%.

But then read a little further, and the Body Corporate Fees are $11,000 a year! (Lush lagoon pools, cyclone insurance, elevators etc.). So on a fully tenanted rental income of under $17,000 a year, you’re paying $11,000 in Body Corporate Fees, before costs.

That’s a yield of like 2.5%.

Not much to like about those numbers, especially in an area that has underperformed on capital growth for years.

Investors beware.

Bonus thought
While we’re thinking about traps for investors, let me ask you this. Is it illegal to rent your property to a friend?

No, of course not.

Is it illegal to lend your friends money? No, of course not.

Is it illegal to lend your friends money so they can rent your property at inflated yields so it sells at a higher price?

Probably, but it might be hard to discover or prove.

As focus shifts to yield, make sure you’re doing your due diligence on what the market is doing, not just particular properties.

Theme Two – Townhouses to Hold Focus
As I’ve written previously, the composition of construction in Australia has shifted heavily towards townhouses in recent years, particularly in Sydney and Melbourne.

Townhouses offer families a liveable but more affordable option, and townhouses themselves are politically sellable – they create more affordable stock without turning into an area into sky-scraper land.

What’s more, given the focus on cashflow outlined above, and given that negative gearing will probably be preserved for new builds, I expect townhouses to continue to come to the fore.

Townhouses can offer attractive yields to investors and developers, especially if they’re built well in popular locations. I’ve been focusing on townhouse development for a while now. I don’t see any reason to change that in 2019.

Theme Three – Decentralisation is a Pipe Dream
I expect a few market analysts to get a bit frothy about the regional markets in 2019. It’s easy to make the case – the capitals are consolidating, and decentralising the population is going to be a hot battle-grounds going into the election.

However, I reckon decentralisation will remain a pipe dream. Population flows where jobs grow, and I don’t know how you force migrants, or anyone, to live out bush. We’ll get a lot of chatter, but I don’t expect much will come of it.

I think the regions will continue to grow, but not spectacularly. They’ll be good targets for manufactured growth plays, but I wouldn’t be expecting anything spectacular in terms of natural growth.

Don’t believe the hype.

Have a Great Year Everyone

So that’s my thoughts about the year ahead. I hope this year has been a successful one for you, and I hope you’ve got something out of my musings. Tune in next year for even more market commentary, political insight and inappropriate comedy.

The stuff I’m famous for.

How to make and how to lose $100K in 13 months

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Flipping always looks like a great strategy in the good times. But are some investors about to come unstuck?  

 Sometimes you strike it lucky in property.  

Like this story of a guy on the Gold Coast who flipped a parcel of land for a $130K uplift.  

(The story appears in the UK’s Daily Mail, because there’s a picture of him with his girlfriend in a G-string. Pure class).  

A 23-year-old man has made more than $101,000 profit after buying a plot of land and mowing it twice. 

Anthony Dart, 23, bought the property on the Gold Coast for $310,000 and 13 months later he sold it for a staggering $439,000. Mr Dart told Daily Mail Australia he made a solid profit of $101,000 after expenses. 

The young entrepreneur was shocked by how much the property appreciated in value in just over a year. 

Hats off to him. From what I know of the Gold Coast market, at that price I expect he bought under market value, and that’s what made those kinds of gains possible.  

And with property prices on a tear-away in recent years, a lot of people would have similar stories.  

Trouble is though, people seem to think that these kinds of stories are the norm.  

Amazing deals like this happen when you do your research and buy under-market, or when you do your research and buy in an area primed for growth.  

That is, when you do your research.  

If you’re not doing your research, then you’re only going to get these kinds of results if you get lucky. And if you’re relying on luck, then you’re just gambling.  

And all gamblers lose at some point.  

Western Menbourne might now be about to become a case in point.  

There’s been a bit of a frenzy going on out there in recent times around house and land packages.  

It’s pulled in a lot of speculative activity, with buyers looking to flip their purchases before settlement.  

As prices stall though, there’s an air of panic brewing:  

Speculators who hoped to get rich on a boom in Melbourne land prices are “panicking” as settlements loom and they can’t find developers to on-sell their sites to, according to Resi Ventures’s Khurram Saaed, who has been developing for 15 years. 

Mr Saaed said he was getting one call a week from panicked speculators, including one buyer who had put down $21 million in deposits on a number of sites and risked losing all their money. 

“These are people who have been successful in other business, and who have just bought land with no due diligence in the hope of making a lot of money in three to four years’ time by flipping the site prior to settlement,” he told The Australian Financial Review. 

And there’s been a strong rise in people taking to gumtree to offload their properties, as real estate in general takes longer to sell:  

A rising number of land owners in Victoria are selling off-the-plan housing lots on classified advertisement and community website Gumtree ahead of their expected settlements next year. 

In the first three weeks of October, nearly 50 advertisements have been uploaded – more than twice the number in September – offering sales of lots in communities like Dahua Group’s Orchard project in Tarneit, Satterley Property Group’s Botanical in Mickleham, MAB’s Merrifield in Mickleham and Stockland’s Edgebrook Community in Clyde and Cloverton in Kalkallo. 

Other land sites for sale are in places such as Greenvale, Melton, Lyndhurst and new suburb Weir Views, all of which are about 20 to 35 kilometres from the Melbourne CBD. 

I’d be keeping a wary eye on this space.  

I don’t think the growth corridors of Western Melbourne were bad places to invest, if you were genuinely investing. I think they’ll be decent going forward.  

And I wouldn’t say no to buying there now… but I would be driving a very hard bargain with eyes wide open.  

But if the flipping spree was as widespread as they say it was (possibly isn’t, who knows), then some extra diligence really is in order.  

Don’t say I didn’t warn you. 

JG 

How to make and how to lose $100K in 13 months

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Flipping always looks like a great strategy in the good times. But are some investors about to come unstuck?

Sometimes you strike it lucky in property.

Like this story of a guy on the Gold Coast who flipped a parcel of land for a $130K uplift.

(The story appears in the UK’s Daily Mail, because there’s a picture of him with his girlfriend in a G-string. Pure class).

A 23-year-old man has made more than $101,000 profit after buying a plot of land and mowing it twice.

Anthony Dart, 23, bought the property on the Gold Coast for $310,000 and 13 months later he sold it for a staggering $439,000. Mr Dart told Daily Mail Australia he made a solid profit of $101,000 after expenses.

The young entrepreneur was shocked by how much the property appreciated in value in just over a year.

Hats off to him. From what I know of the Gold Coast market, at that price I expect he bought under market value, and that’s what made those kinds of gains possible.

And with property prices on a tear-away in recent years, a lot of people would have similar stories.

Trouble is though, people seem to think that these kinds of stories are the norm.

Amazing deals like this happen when you do your research and buy under-market, or when you do your research and buy in an area primed for growth.

That is, when you do your research.

If you’re not doing your research, then you’re only going to get these kinds of results if you get lucky. And if you’re relying on luck, then you’re just gambling.

And all gamblers lose at some point.

Western Menbourne might now be about to become a case in point.

There’s been a bit of a frenzy going on out there in recent times around house and land packages.

It’s pulled in a lot of speculative activity, with buyers looking to flip their purchases before settlement.

As prices stall though, there’s an air of panic brewing:

Speculators who hoped to get rich on a boom in Melbourne land prices are “panicking” as settlements loom and they can’t find developers to on-sell their sites to, according to Resi Ventures’s Khurram Saaed, who has been developing for 15 years.

Mr Saaed said he was getting one call a week from panicked speculators, including one buyer who had put down $21 million in deposits on a number of sites and risked losing all their money.

“These are people who have been successful in other business, and who have just bought land with no due diligence in the hope of making a lot of money in three to four years’ time by flipping the site prior to settlement,” he told The Australian Financial Review.

And there’s been a strong rise in people taking to gumtree to offload their properties, as real estate in general takes longer to sell:

A rising number of land owners in Victoria are selling off-the-plan housing lots on classified advertisement and community website Gumtree ahead of their expected settlements next year.

In the first three weeks of October, nearly 50 advertisements have been uploaded – more than twice the number in September – offering sales of lots in communities like Dahua Group’s Orchard project in Tarneit, Satterley Property Group’s Botanical in Mickleham, MAB’s Merrifield in Mickleham and Stockland’s Edgebrook Community in Clyde and Cloverton in Kalkallo.

Other land sites for sale are in places such as Greenvale, Melton, Lyndhurst and new suburb Weir Views, all of which are about 20 to 35 kilometres from the Melbourne CBD.

I’d be keeping a wary eye on this space.

I don’t think the growth corridors of Western Melbourne were bad places to invest, if you were genuinely investing. I think they’ll be decent going forward.

And I wouldn’t say no to buying there now… but I would be driving a very hard bargain with eyes wide open.

But if the flipping spree was as widespread as they say it was (possibly isn’t, who knows), then some extra diligence really is in order.

Don’t say I didn’t warn you.

Shock! Can your tenants sue you now?

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New “renter’s rights” don’t make sense… until you understand where they’re coming from.

Why are we now so concerned about “renter’s rights” all of a sudden?

In the last month both Victoria and NSW introduced new “reforms” to “protect” renter’s “rights”.

Victoria led the way (as it always does):

Premier Daniel Andrews announced 130 reforms will be introduced into parliament this week…

Every rental home will have to meet basic standards including functioning stoves, heating, deadlocks, gas, electricity and smoke alarms.

Rental bidding will be banned and rent increases will be limited to once a year.

Renters will be given the right to make minor modifications without landlord consent, such as nailing a hook on the wall or installing anchors to stop furniture falling on children.

People will also be able to keep pets with landlords only able to refuse the right of a tenant to have a pet by order of the Victorian Civil and Administrative Tribunal.

The changes will also allow for quicker returns of bonds, which will be capped at four weeks’ rent…

Ummm…. Were there really many rentals out there that didn’t have electricity or functioning stoves? I thought we already had legislation around that… and smoke alarms?

And that pets one… man, that is a doozy. What if my tenant wants to keep a horse in my two bedroom unit? What about Great Dane, which is really just a horse pretending to be a dog?

Have I got no capacity to say, I really don’t think a pet is appropriate? Where do you draw the line?

Anyway, NSW then followed up with a similar bunch of reforms:

NSW renters are set to see the biggest shake up of rental laws in more than two decades.

The major changes will include limiting rental increases for periodic leases to once a year, set fees for breaking a fixed-term lease and no penalties for domestic violence victims who break a lease.

Other changes include introducing minimum standards like basic access to electricity and gas, that buildings are structurally sound, and have adequate natural or artificial lighting and ventilation…

Better Regulation Minister Matt Kean on Thursday introduced long-awaited amendments to the Residential Tenancies Act, labelling them “sweeping reforms for tenants’ rights”.

“Under these common-sense changes, renting families will be able to make minor alterations, such as installing a picture hook to hang their family photos, and will benefit from a new set of minimum standards to ensure properties are in a liveable condition,” Mr Kean said.

Again with the “minor alterations”… what does that even mean?

I mean, everyone is going to have a pretty different definition of ‘minor’. Am I going to get a call from a tenant:

“Hi Jon, just wanted to let you know I made some minor alterations to the walk-in pantry…”

“Oh…?”

“Yeah, I just turned it into a hot-tub and sauna. Nothing major.”

“What? That sounds like a pretty major alteration actually.”

“Oh… Well, you’re probably not going to be happy about the new meth lab then either.”

Seriously though, does the legislation cover every definition of what you could possibly do to a place and what could be considered minor or major? Are we going to tie up the courts deciding if the changes to the light fittings were excessive or reasonable?

Madness.

But that’s all a problem for the legislators.

But I come back to the original question. Where has this come from?

Were there a spate of deaths in rental properties without fire-alarms? Were there thousands of people desperately wanting to put in picture hooks, petitioning the government?

Were there rental properties without electricity?

No. I don’t think so.

Rather, this happened:

The number of rental households has been steadily increasing, and broke 30% nationally at the last census.

At the same time, higher house prices have meant that many wanna-be home-owners are realising that they may be renting for a lot longer than they thought.

In the past, I think people knew that renting didn’t give you the same privileges as owning, but that was ok because you didn’t think you’d be renting for all that long. Just long enough to get your deposit together before you bought.

Now though, as house prices remain out of reach, people realise they’ll be renting for a while, and so find that they do actually care what rights renter’s have, in quite specific detail apparently.

And so put these two together: a growing number of households renting plus a growing interest in renter’s rights – and you’ve got the making of a serious political block.

30% of the population is huge, in political terms.

And so there were votes to be won in playing to the “renter block”.

And that’s exactly what Victoria and NSW have done. This is where this is coming from.

And I’m afraid it probably won’t be the end of it either.