Many lost in property market

PICTURE this – the robot from the 1960s TV series Lost in Space madly flinging its arms around, body spinning, head flashing.

“Danger, Will Robinson.

Danger.”

That’s me, right now, thinking about the inner city apartment market. My arms are waving in the air, warning all the young housing adventurers lost in the property market.

Actually, let’s apply that warning to the whole Robinson family, the first-time buyers, the investors and even Dr Smith – he’ll be relying on his superannuation by now and be just as vulnerable to a bit of property market hard sell.

Buy-now pay-later has come to the residential property market and it’s making my head spin. “Danger. Danger.”

Buyers are being schmoozed with the offer of no repayments by developers, not because they have a good heart and want to do the buyers a favour, but because developers are desperate to sell their unwanted properties.

And typically these deals are being offered with new and offthe-plan apartments. Times are getting so tough for developers that this is the only way they are going to get a nibble of interest. The lure for would-be buyers is obvious and, unfortunately, could prove irresistible for some.

All that the buyers have to do is stump up a deposit and nothing to pay for three, four or five years. Yeah!

The theory being pushed by the developers is that when it comes time to start making repayments, it will be a whole new world. The buyers will probably have higher incomes, the property will be worth more and lenders will be ready to fall over themselves to give them a loan.

However, the reason for pushing this new, fancy, easy, imaginary future, is to suck in buyers.

Buyers, who in the real world, can’t get a loan because they can’t afford a loan. Buyers who don’t earn enough, don’t have a big enough deposit or, increasingly, buyers who can’t get a loan because the property is so overvalued that no bank will lend them enough.

No repayments usually means the debt is compounding. The interest that would have been charged is usually just added to the final debt. Or the price is bumped up at the start.

“Danger. Danger.”

And then, of course, at the end of the no-payment period, the buyer has to refinance or get a proper loan.

Fingers and toes will have to be crossed in the hope the property has increased enough in value for the bank to be willing to offer a loan the buyer can afford.

If the bank doesn’t want to take the risk, these buyers will be forced to sell and potentially be left with a debt or lose most of their initial deposit.

And, unfortunately, that’s also going to be the situation for many current home buyers as their interest-only loans of three years ago start to come up for renewal.

In many cases their properties will have gained little value, if not gone backwards, compared with their over-valued, inflated sale prices. With the full whack of principal still outstanding on the loan, banks will be very wary.

Add to this situation a double whack of potential pain as we head toward a new cycle of interest rate increases.

“Danger. Danger.”