High Rise Towers – Yet Another Reason to Stay Away (no. 2)

Lenders have blacklisted more than 100 suburbs, due to the glut of new apartments in Brisbane, Melbourne and Sydney.

Check out the suburbs with restrictions – the restrictions exist because banks are concerned about a lack of growth in value.

What does this say to investors?

Do not buy high density apartments in any of those locations. Simple.

Some of the lenders are getting stricter with the requirements of the internal layout, which is a positive step towards improved apartment living standards, and in turn, investment returns.

Through policy setting, the banks can play a role in filling some of the void left by state governments when it comes to managing the quality and standards of high density apartments.

Flow on positive benefits to owners will be improving the long-term value of investing in high density apartments, safety of living in the apartments and improved standard of living. All the while, banks are improving the quality of the security for their most ‘precious’ asset, the mortgage.

In other words, positively influencing the quality of high density apartments through tougher lending policy has a longer-term financial benefit for lenders.

Ultimately, mortgage profitability is driven by borrowers being able to meet the cash flow requirements of any borrowings. The quality of the security is often solely judged on its ability to cover the value of the debt.

Thinking proactively from the perspective of asset appreciation and rental return of the apartment not only protects the lender, it also:

  • Improves the financial position of the borrower, and
  • Enhances the chances that the borrower will be able to take on more debt, to grow further wealth and create more profit for the lender and its shareholders or members.

Doesn’t that sound like a win for all – well, except for developers who want to take risky short cuts at the expense of the purchaser!

Below is an overview of some of the bank policy changes:

  • Lower loan to value ratios eg: minimum deposit of 20%
  • Minimum floor space requirement
  • Increased floor plan and internal expectations
  • Reduced timeframes for validity of a valuation – down from 6 months to 3 months

Check out recent blog ‘High Rises – Another Reason to Stay Away’

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By |2017-12-08T12:08:56+00:00October 27th, 2017|

About the Author:

David Johnston
David is the Founder and Managing Director of Property Planning Australia, author of ‘How to Succeed with Property to Create your Ideal Lifestyle’, co-author of ‘Property for Life – Using Property to Plan Your Financial Future’ and a widely-published media commentator. With more than 20 years of experience, David is passionate about educating others to make informed, and ultimately, more lucrative property investment decisions. David established Property Planning Australia in 2004 – with the vision to educate and empower Australians to make successful property, mortgage strategy and money management decisions.  Property Planning Australia’s operations have earned acclaim and national industry awards for its unique fusion of property planning, education, money management, mortgage strategy and risk management. All supported by multi award winning customer service.