The dam is about to burst; pent up property demand to release

Further to our last article (Let’s talk about interest rates, a recession and the fear of buying) where we spoke about the changes we saw coming from APRA and the RBA, an article published this week by the Australian Financial Review gives us further confidence that the property market dam is about to burst!

The Australian Prudential Regulation Authority (APRA) has publicly declared it is open to adjusting assessment rate settings to “avoid strangling credit growth in the housing market”. At the same time, banks are exploring options to make 35 year loans available to more borrowers to make repayments more affordable and to enable greater loan amounts up front.

These will be major triggers for the next wave of the housing market spend spree as more people will be able to borrow more money.

The serviceability buffer exists to ensure that someone who borrows money from a bank is able to afford the repayments not only at the current interest rate but can also afford to pay 2-3% on top of current interest rates to future-proof the loan. This buffer, or assessment rate, can often limit the amount of money people can borrow and prevent them from making property purchases, particularly when property prices and interest rates are rising and the serviceability of a loan becomes ever more unattainable.

By reducing the serviceability assessment rate, more people would be approved in their loan applications, and for larger amounts of money. What it means is someone who would service under the current assessment rates for a $565K loan for example may soon be able to service a $635K loan.

While interest rates aren’t declining yet, it’s clear that we are close to the end of the rate rise cycle (even if there are a couple more to come); APRA wouldn’t reduce the assessment rate if it felt the interest rates would rise beyond their ‘buffer’.

As we have been discussing for quite some time now, the supply and demand imbalance is what is driving the property prices on the Sunshine Coast. With more people able to access money through these impending lending changes, easier access to funding will be a trigger for the pent up demand to be released. With ‘affordable’ property prices continuing to rise, this increased competition will force entry prices higher and more people out of home ownership. The undersupply will also continue to apply upward pressure on rents, with an anticipated >10% increase over this year alone.The Sunshine Coast is and remains a very exciting prospect for capital growth and rental yield, resulting in the ongoing potential for a very sound return on investment.

With all this in mind, we have historical evidence that shows people overreact immediately to negative stimuli and take time to react to positive stimuli. So, while we don’t expect the property dam to burst overnight, it is absolutely coming and the smart money is buying now to reap the benefits of what’s ahead.

If you’d like to understand the opportunities available to you to leverage the current market opportunities then reach out to our team for a free property strategy session to see you get ahead of the pack.