Australia could soon face a massive collapse in its residential property markets if Harry Triguboff is right about the quandary facing lenders and investors.
The head of Australia’s biggest apartment developer said that the country could soon face a crash in its property market if jittery lenders flinch collectively at the prospect of sliding demand.
Harry Triguboff, founder and manager of Meriton, said to Business Spectator that mounting trepidations on the part of Australian lenders could induce a collapse in local property markets that will give the 2007 US subprime crisis a run for its money.
Triguboff expects a collapse to be likely in the second half of 2016, contingent upon decisions made by the banks with regard to lending to residential property investors.
According to Triguboff the Australian property sector currently finds itself in a precarious quandary as a result of the lending loophole enjoyed by banks when it comes to investments in new apartment developments.
Apartment developers throughout Australia procure loans from banks based on 10 per cent deposits and the provision of a “firm commitment” that investors will make payments once projects are finished.
The banks have in turn indicated to investors that they will provide financing for the payment of apartments upon completion. These commitments are not binding, however, and banks retain the option to withdraw should they feel genuine concern at the potential for the market to falter.
If the banks opt to withdraw from their financing commitments to apartment investors en masse, this in itself could trigger a broader collapse in the market.
“The banks can vary the amount of the deposit the purchaser has to find; the bank can vary the valuation; the bank can suddenly refuse to abide by the non-binding promise to finance an investor,” Triguboff said.
“I hope that the banks will only use these measures as a last resort, and not often…if the banks become unreliable lenders, apartment prices will drop dramatically.”
The ancillary factors for such a withdrawal could soon be in place, with a huge supply set to soon hit the residential property market and China’s economy showing marked signs of faltering.
Triguboff further warns that if banks were to exercise the escape option on their funding commitments to new developments it would have dire ramifications for the rest of the residential property market, with existing apartment prices expected to fall even more sharply.