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cobran20

Changing the Rules: Why our Property Boom is Over (Part 1)

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Sam Birmingham runs a top quality networking site for young professionals called WeBe, which provides up-to-date information on financial matters, work-related issues, lifestyle news and reviews, and current affairs and opinion pieces. WeBe also provides a platform where members can have their voices heard, express opinions and share ideas with other like-minded Young Professionals.

Yesterday, Sam published the first in a series of articles explaining why the Australian property boom is over. Below is the first installment.

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Housing affordability was the most important issue in Election 2010 and the problem has only got worse, with the RBA continuing to hike interest rates. What is being done to improve housing affordability? The short answer is "bugger all"... But a rapidly-turning property market could be about to fix all that.

Despite remaining strong in the wake of the GFC, our property market is showing signs of stress.

Investors have been driven away by rising interest rates and prospective first home owners are staying on the sidelines. The Economist reckons Australia has the most over-priced houses in the world and some analysts predict falls of 30-40% over the coming years. The IMF is nervous about a developing bubble and even the head of the RBA has warned Mum-and-Dad investors that it is "a mistake to assume that a riskless, guaranteed way to prosperity is just to be leveraged up into property".

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Also remember that as of Jan 1st this year, banks are obliged to only lend money to people who can afford it, which translates to the complete death of no-doc and lo-doc loans.

This is going to stop quite a few overleveraged people in their tracks. It certainly stopped us - our income has been effectively halved by the new credit rules as the banks are taking the letter of the law not the spirit of the law.

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Care to elaborate what the banks require now RumpledElf?

I had a look on the ASIC site but it doesn't state any hard LVR. I'm guessing the income/cost reporting can't be fudged anymore, which is what lots of brokers did to get loans through.

Since people are licensed in the lending chain, now there is a legal recourse to fraud if it happens, ie brokers can get sued if they lie.

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Also remember that as of Jan 1st this year, banks are obliged to only lend money to people who can afford it, which translates to the complete death of no-doc and lo-doc loans.

This is going to stop quite a few overleveraged people in their tracks. It certainly stopped us - our income has been effectively halved by the new credit rules as the banks are taking the letter of the law not the spirit of the law.

Is the St George bank now veiwing rent as the equivalent of savings one way to get around these new requirements, at least partially?

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