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Guide To Protecting Yourself Against Future Downturns In Real Estate Market

While news of the housing crash is making headlines in most papers and front lining the evening news there still remain a few markets where the crash has not made as much headway. If you live in one of these markets and you have not yet been affected by the real estate market crash, be aware that you may not have as much time to respond as you think when the market in your area begins to slide downward.

This is because a market can practically spin on a dime and go from being quite healthy to being practically dead. As a result, you could find yourself holding a property that you are unable to sell. If this is an investment property, this could be quite serious; however, even if it is your own personal residence, it could still cause problems if you need to sell for a profit for some reason. This is why it is imperative to make sure that you protect yourself now so that you will have options available to you in the event the market does begin to crash in your area.

The first step that should be taken to protect yourself and your investment is to change from an interest-only loan or adjustable rate mortgage to a fixed rate mortgage. A fixed rate mortgage will provide you with the opportunity to tap into lower, more secure rates. In the event that rates continue to rise and do so sharply, this can provide you with some peace of mind.

In addition, you need to take steps to ensure that you will be able to afford to remain in your primary residence. In the event that you do not foresee a move in the near future, there should not be any real concern regarding whether the value of your home goes up or down right now. If you plan to be in the home for some time, it is important to recognise that it is really more than just an investment. In addition, it is quite likely that the market will stabilise eventually and the value of your home will stabilise as well. However, if you find it difficult to make your housing payments every month or you think you may need to relocate soon, then you should consider selling the property and moving now before the market in your area slips any further.

Furthermore, you need to ensure that your savings are safe. It is important to recognise that financial institutions do typically invest quite heavily in real estate. If the housing crash continues in the same vein, your investments could be at risk. Savings and loans and banks are the most at risk. To ensure that your investments are safe, it is a good idea to obtain an analysis rating of your bank.

In addition, it is important to focus on current and future investments. During this time conservative investments are likely to be the smartest investments to make. These investments include blue chips stock and term deposits as well as foreign currencies which are strong.

Taking steps now to protect your investments and protect yourself against future possible downturns in the real estate market in your local area will help to guard you against possible risk.

Recently, new developed apartment complex in Sydney is to be sold in a fire sale.  

Dozens of units in a brand new multi-million-dollar Sydney apartment complex will be sold in a fire sale after the developer failed to find a buyer for them.

Colliers International is selling 61 units in the Elysee development on behalf of receivers and managers Newpoint Advisory.

A beautiful combination of high-quality materials and artistic design have created a truly iconic living space that will inspire generations to come,’ the project’s website says of the units, located at 1-5A Cliff Road, Epping, in Sydney’s north-west.

Little-known developer Gondon sold a total of 69 units in the project but has been unable to offload the remaining 61 units.

The developer reportedly spent over $26 million snapping up properties along Cliff and Carlington Roads in 2016 in order to acquire the land for the project.

The receivers were called in by an offshore bank located in China, according to The Sydney Morning Herald.

December data from property research firm CoreLogic shows that the Sydney and Melbourne housing markets are in decline – drawing down the national property value average by 4.8 per cent.

Property prices in Sydney have dropped 11.1 per cent since their 2017 peak.

Property experts have warned more developers could be at risk as dropping house prices and tightening credit for potential buyers force their profit margins increasingly tighter.

SQM Research property analyst Louis Christopher told the Sydney Morning Herald that despite recent falls, Sydney and Melbourne’s property markets are still overvalued.

‘Sydney and Melbourne remain heavily overvalued despite the price falls that have happened, there is an election just a few months away where negative gearing is at play, and the banks are still being very draconian on providing loans to the market,’ he said.

‘We think there will be more price declines.’

The 61 units in the Elysee development are for sale by Expressions of Interest closing on February 25.

Daily Mail Australia has contacted Newpoint Advisory and Colliers International, however, they declined to comment.

Lending by Australian banks is down 22 per cent from its peak as the big four tighten the screws on investors, raising standard variable interest rates and ramping up scrutiny of borrower’s applications.

The country’s largest property players face an escalating risk of buyers failing to pay at settlement time because of falling apartment and land prices, analysts say.

“We see Mirvac as most at risk followed by Lendlease and Stockland,” UBS analysts Grant McCasker and James Druce said.

Apartment sales make up a significant chunk of earnings for Mirvac, in particular, over the next three financial years. In 2020, nearly one third of the group’s earnings will come from settlements in Sydney and Melbourne.

The most at risk projects are in Sydney’s Marrickville and Olympic Park which “appear already out of the money” because Sydney’s apartment price index has fallen 5 per cent since launch, the analysts said.

St Leonards could also become an issue were prices to fall a further 5 to 10 per cent.

“We are less concerned about Lendlease’s settlement risk given the price growth since the 2015-16 launch dates,” Mr McCasker and Mr Druce said.

Another major developer, Stockland, has minimal exposure to the apartment market but is banking on substantial earnings from land sales for new homes.

The number of buyers cancelling contracts on land purchases is presently low, but UBS warns that tightening credit, price falls, incentives and lower deposits will increase the number of struggling buyers.

There has been a documented rise in speculative land buyers trying to offload their purchase contracts on Gumtree and other sites, which adds to the risks.

“We expect Stockland’s second half settlements to disappoint as cancellation rates increase and settlement times extend,” UBS said.

Property experts believe there is more pain to come for the sector.

SQM Research’s property analyst Louis Christopher said, despite recent falls, Sydney and Melbourne’s property market are still overvalued.

“This downturn still has some legs to run yet,” he said Tuesday.

“Sydney and Melbourne remain heavily overvalued despite the price falls that have happened, there is an election just a few months away where negative gearing is at play, and the banks are still being very draconian on providing loans to the market.”

“We think there will be more price declines,” he said.

While there are few markets in the country that have managed to survive the current housing market without any battle scars there are some markets that have experienced more serious issues than others. Two of the worst markets in Australia at the moment are Sydney and Melbourne; however, they are definitely not alone when it comes to markets that are falling with no end in sight any time soon.

By and large, the riskiest markets at the moment are those that are experiencing the highest rates of foreclosures. Other factors that are contributing to problem areas include high rates of job loss and slow job growth. Markets in which the number of homes for sale is rapidly rising are also experiencing significant problems. Rapidly rising property values just a few short years ago is also proving to be a stumbling block for many markets.

During the housing boom these markets commonly experienced property value increases of two-fold and even three-fold in many cases. Once the boom ended; however, these markets began to fall and as of yet, they have not hit the bottom. These markets are also at greater risk for problems due to the large presence of adjustable rate mortgages.

During the housing boom, as prices were escalating quickly, buyers frequently took advantage of adjustable rate mortgages to obtain even lower interest rates to make their housing payments more affordable. This was quite common in areas where first-time home buyers were struggling to afford the rapidly rising prices of homes.

The subprime mortgage market is also more highly concentrated in these areas of the country. Lower interest rates at the time prompted many people to rush out and buy homes. Unfortunately, the credit profile of many of these buyers was less than sterling. Mortgage loans made in these markets during this time frequently involved subprime, adjustable rate mortgages. As the market began to fall, interest rates began to increase. Today, those same homeowners are finding they can no longer afford their mortgage payments. The result? Foreclosures have risen sharply in market areas where the boom once allowed housing values to double and even triple practically overnight.

Economic conditions in many areas have further fueled the crisis. As the number of layoffs increase, the number of foreclosures and homes for sale seem to increase as well.

Sydney, considered to be among the worst housing markets, has experienced a drop in homes prices that is well above the national average. Like many other housing markets in similar situations, Sydney fell victim to a fast paced market and subsequent plummeting pricing. Today the median home price for homes in Sydney remains far above other markets in the country, despite the worsening situation. Given the large number of houses on the market; however, this is far from good news.

In spite of the situation in Sydney; however, it is definitely not the worst case scenario at the moment. That honour goes to Darwin, where market prices have experienced a drop of more than 7%.

While these markets are not showing any signs they will rebound in the near future; there are some markets; however, which are actually posting increases. Hobart is one such market. Median home prices in Hobart have actually risen almost 7% in the last year. Other cities on the rise include North West Melbourne and Brisbane.




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