Prices Down 15%!? The Property Crash We Had to Have

A client of mine approached me a couple of weeks ago to enquire about property investment in his Self-Managed Super Fund (SMSF). We had a productive chat – put a plan in place, and he went back to his broker to arrange formal finance approval.

The estimated budget he’d been given at the point of discussion was $850,000. Two weeks later, his budget had been slashed to $500,000. In light of the Federal election and rising rates, his lender had tightened what they were prepared to lend considerably (despite him not being directly impacted by the policy changes.)

It’s only one example, but I’ve heard many similar stories across the industry.

It’s all well and good wanting to buy in a falling market or after the crash, it’s the classic land cycle playbook - wait for the crash, buy in. But when it comes to it, borrowing anything in a downturn can be problematic. I recall during the 2008 GFC (Global Financial Crisis), banks globally were far more restrictive on what they'd lend (if at all) while suffering huge losses in bank capital.

Therefore, even before we reach the ultimate downturn, the changes announced in the Federal Budget are going to have a dramatic impact on prices.

You have to feel for the first home buyers who stepped in on the Federal Government’s 5% deposit scheme. They will soon be underwater, locked in, and unable to sell or convert their loans into investment loans.  

It will likely be a year to 18-months at least, until we see a dramatic change in policy to pump demand back into the property market. Still - the ongoing middle east conflict will prevent the RBA going back to the cash rate settings we had in the early part of this cycle.

Property Prices already crashing?...

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