Being prepared for a challenging market

Brokers will need to work harder as the market changes in 2016, says Jason Back of AMA Brokerage of the Year, The Australian Lending & Investment Centre.

Ongoing foreign investment

With the Australian dollar at just over US$0.70, our market continues to be attractive to foreign investors. This has led many banking institutions to review their lending policies with regards non-resident borrowers. 

Brokers need to ensure their foreign investment clients are compliant with the new ownership regulations (bank as well as government) and that they have additional documentation on hand to confi rm their income and their ability to manage their mortgages.
Oversupply of investment property looms
Oversupply is set to be a major issue in coming years. Those mostly affected will be investors and home owners buying off-the-plan properties who will begin feeling the impact of their poor investment decisions in late 2016 and through 2017. 

Coupled with ASIC and APRA changes, this will place enormous pressure on rental yields as well as valuation prices, with buyers needing to kick in additional money or equity at settlement. This is especially the case in markets like Melbourne and Brisbane where oversupply of investment property is a major problem. 

Brokers will need to ensure their clients have strong cash reserves and/or existing equity in their portfolios, as this will put them in a better position to cope with a market increasingly under valuation pressure at settlement. 

Impact of APRA/ASIC regulatory changes
Major regulatory changes, such as changes to servicing sensitisation and the introduction of tiered interest rates, will have a knock-on effect well into 2016. While ALIC will always support a safer environment for Australians to both invest and lend in, the changes will mean it is tougher for new and existing investors to expand their property portfolios.

Brokers will need to be across all lending options available in the market as well as those which best meet their clients’ needs. 2016 will not just be about educating the client – the best brokers will be learning and adapting to change and in the process becoming specialist problem solvers.  

Tiered interest rates
The move last year by banks to a two-tiered interest rate structure saw many investor borrowers paying interest rates between 0.27 and 0.6 percentage points higher than those charged to owner-occupiers. 
This is a great opportunity for brokers to review their clients’ structures and ensure the debt purpose is still the same as it can change over time.  

Negative gearing
This will remain on the agenda as the Federal Government looks for pools of revenue to fund its $44bn defi cit. What the Federal Government will discover is there are few people on the top marginal tax rate in a position to truly benefit from this property strategy. Also, 70% of all investment property owners own just one investment property! 

Changes to the negative gearing laws could have a harmful and far reaching effect on the entire property market – from buyers to sellers, developers and even those that rent. We could see the knock on effect in the ancillary industries that supply the construction industry, resulting in the devaluation of the property market and a reduction in net wealth.

As a trusted adviser for our clients and in the face of these mounting challenges, the broking industry now, more than ever, needs to demonstrate its real value by providing our clients with much greater choice, a more effi  cient service and the best possible advice. After all, we are the custodians of their wealth! 

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