What to do if you can’t get finance: Craig Turnbull

It is often said that the most important factor in successful real estate investing is – location, location, location. And in some respects that is correct. 

Though there are so many other factors that come in to what can affect real estate values – like supply and demand; unemployment; average incomes; proximity to infrastructure like transport, shops, schools, medical facilities; population growth including natural births & immigration. It can be quite a long list of elements to consider.

Most commentators ignore what I now believe to be a critical factor in the pricing and relative value of real estate. The lifeblood of building a property investment portfolio is money. That is – money you borrow to buy houses, apartments, townhouses or other income producing real estate. If there is plenty of money available at cheap prices (low interest rates) people will borrow to buy and drive prices up. If the money supply is tight and fewer people can borrow to buy, the assets prices can no longer be supported.

Recently, the Australian Prudential Regulatory Authority (APRA) at the behest of the Federal Government bought out new guidelines for the big banks in terms of what and how loans can be made to real estate investors.

It was to be a “tap on the brakes” to slow down the property market by reducing the amount of loans to investors – principally aimed at the very hot Sydney market. It has turned out to be interpreted by the banks as a big red stop sign – it seems as if they have effectively “slammed on the anchors” in terms of money being loaned to all property purchasers and particularly to investors. The way the banks are assessing loans to investors in terms of serviceability has also changed, making it much harder for them to qualify for a loan to expand their property portfolios.