Sunday, March 7, 2021

The looming crises in the property market, and what it means for buyers

Reading Time: 2 minutesProperty is considered to be a long-term investment. A general consensus is that given time, in any structured growth investment, one comes out on the positive side of the ledger.
The Australian property market enjoyed an unprecedented boom between 2012 and 2017, when prices soared by over 72% in Sydney and 56% in Melbourne. This growth, however, was not evenly spread, with states in the eastern seaboard experiencing the best returns, whereas Western Australia and Queensland property values actually went the other way.
Property market.Indian Link
For new migrants coming to Australia in the last five-six years, prior to 2017, property boom was the order of the day. Upon migration, which has its own set of anxieties, there was also the added pressure to get into the property market, or risk missing out on ever owning a property in Australia, especially in Sydney and Melbourne. The media didn’t help either, with screaming headlines of sales far above reserve prices. When financial decisions are made with emotion and under peer pressure, rather than with seasoned and rational thought, it can bring on disaster.
Those who are most exposed to the falling property market are those who bought off the plan and are expecting a settlement in the next couple of years. Buying off the plan is a strategy akin to a double-edged sword. In a rising market, locking in a future price works well; but if the market has fallen, it can lead to a financial disaster.
Buying off the plan means putting a small, agreed deposit to purchase a property at a future time at a predetermined value. Builders like this strategy, as it secures a sale; for astute buyers, they can plan their cash flow around what they expect to buy in the future. The only variable is the bank who will review their lending based on the property value at the time of settlement.
Shane Oliver, a respected economist, has predicted a 25% drop in the property values from the peak of 2017. He says this will wind the clock back to the levels of 2014-15 property prices. He has also cited research that the Labor Party’s proposed changes to negative gearing can further depress property prices by another 9% in Sydney.

For those who have bought off the plan in the last year, the problem with lower valuations is that at the time of settlement, the lending banks may reconsider their earlier commitment and only agree to fund their lending based on the lower property value. This could put pressure on the new buyer to either front up with an additional lump sum or potentially sell the property at a substantial loss. Neither option is particularly palatable.
For cashed-up buyers, this vulnerability of the off-the-plan buyer and their exposure creates good opportunities to buy quality long-term assets at depressed prices.
Like in life, there are always winners and losers in any transaction.

- Advertisement -
Pawan Luthra
Pawan Luthra
Pawan is the publisher of Indian Link and is one of Indian Link's founders. He writes the Editorial section.

Related Articles


Please enter your comment!
Please enter your name here


Ep 9: What do young Indians want from love?

Growing up in Indian culture, most of us know that love has never been as popular as marriage. Even in the movies, the main...

Ep 8: Indian links in Indigenous Australian poet Ali Cobby Eckermann’s...

To celebrate NAIDOC week 2020 (between 8-15 November) I spoke to Yakunytjatjara poet Ali Cobby Eckermann about her time in India where she taught...

Ep 7: In the case of Sushant Singh Rajput

  The torrid and high-octane Sushant Singh Rajput case has been fodder for Indian people and press for the last few months. The actor’s tragic...

Latest News

Guess The Song rj ekta

LISTEN: Will you be the one to correctly guess this tune?

  Are you good with guessing tunes? Keen ear for rhythm and beats? RJ Ekta might've been able to stump you with this one. She recently...
Dr Michelle Ananda-Rajah twitter thread

Women, what would you tell your school age self?

  Ahead of International Women's Day on 8 March, Monash University's Dr Michelle Ananda-Rajah was asked to speak at a girl's school. The inspiring academic,...
women empowerment

WATCH: Hindi poem about women empowerment

  Ever have those days where nothing is going your way? You feel demotivated and wonder, "what's the point?". The last couple of weeks in Australia...
march 2021 shows and movies

Indian shows and movies to watch in March 2021

  Bombay Begums (Netflix) After the award-winning Lipstick Under My Burkha (2016), director Alankrita Shrivastava is back with another empowering series about women. Set in urban...

Japanese billionaire seeks eight artists for free Moon ride

  Japanese billionaire Yusaku Maezawa has invited eight people to join him for a free ride to the Moon on a SpaceX Starship rocket sometime...