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Should Property Investors be Concerned About Rising Household Debt Levels in Australia?

Household debt is at an all time high in Australia. Compared to other developed countries Australia's household debt to income ratio is currently at a staggering 202% according to the OECD, with the only other countries having a higher percentage being Denmark, The Netherlands, Norway, Switzerland. It is also extremely concerning to note that the Global Financial Crisis in 2007-2008 coincided with rising household debt in the United States, and many economists have argued that it is important to reduce the current household debt levels to facilitate economic recovery. Another example would be the 1991 Asset Price Bubble Collapse in Japan, with the Japanese economy having never recovered to its pre-1990s GDP. Thus, an evaluation of the validity of these comparisons should be examined.

The first, and most dissimilar example would be to compare the current situation in Australia to Japan. Unlike Australia, Japan's economic crisis was worsened by the fact that it is currently facing a demographic crisis, yet is also unwilling to alleviate this issue by increasing immigration. In fact, the National Institute of Policy and Social Security Research estimates that Japan's population will shrink to 106 million in 30 years, not a figure that is indicative of economic growth. Considering the shrinking population, tax zoning laws (that cause property to become less expensive), and the general perception in Japan of property being a depreciating asset similar to a car rather than as an investment, then it is apparent that this comparison is not valid.

Comparing the current situation to the GFC would also be a bad analogy. The main difference between what happened in 2007-2008 to now is the fact that lending regulation has become significantly more strict. The sub-prime mortgages that were prevalent in the United States prior to the GFC are not present here in Australia, as there were also Credit Rating Agencies that deliberately understated the risk of these various mortgages. Following scathing reports after the Banking Royal Commission and APRA now stipulating that there be a stress test for mortgages at 3.0% above the rate of the loan, it is clear that Australia's current economic outlook is much better than the US' during 2007-2008, and is in no way similar.

Nevertheless, there are some areas to be rightfully concerned about, namely the increase in supply that would inevitably occur and continued uncertainty on how rising interest rates would affect the economy. Considering that the current surge in real estate prices was driven by a complete lack of demand, it would not be unreasonable to use supply-demand to project that 2022 may face a glut of supply as homeowners and investors anticipate the rising interests rates to most likely affect property prices. Therefore, investors should still do their due diligence in the short term, but rest assured in knowing that the property markets in the long term will remain stable.

How we can help?

As home loan rules are tightening, in order to better support both local buyers and international investors, KBRZ has recently introduced a special home loan product, K-Loan with a more flexible approval process. A maximum loan amount of 1.5 million is available with interest rates starting from 2.37% for local borrowers and 4.78% for international customers, both supporting offset accounts.

Why Consider Private Lending?

Private loans generally have higher interest rates and shorter loan periods compared to bank loans, and you may ask why pay more with private lending?

​Fast turnaround time is the answer in most cases. Private lending is a loan product that serves very specific purposes. It normally takes 6 to 8 months for traditional lenders to approve a loan and if an individual needs the money within weeks or days, private lendings may be the only solution.

Policies for bank loans also change from time to time and individuals may therefore fail to get a mortgage that they could before. If the date is close to settlement, private lending also comes in handy.

Why consider KBRZ?

At KBRZ we aim to distinguish ourselves with our speedy quote processing. To help clients enjoy greater profits, we are offering both 1st and 2nd mortgages for clients who need that extra bit of financial freedom. With options for higher LVR's* and highly competitive rates*, we aim to provide unique financial solutions that are tailored for our clients, all done through a fast and minimal hassle process. For brokers, we offer enticing brokerage fees, that are paid out of our competitive management fees, so no extra costs for your clients.


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