Interest only property bunnies at greatest risk: Marcus Padley

Interest only property bunnies at greatest risk: Marcus Padley
Jonathan ChancellorDecember 7, 2020

Share market commentator Marcus Padley doesn't invest in property, saying that he feels that he has enough exposure through his home.

He recently wrote in Fairfax Media that a large part of the long-term wealth accumulation in property has always been the forced saving element.

But following his recent research for a debate on housing versus shares at the recent Home Buyer and Investors show, Padley concluded that the culture in Australian investment property is not to save.

He cites recent APRA numbers that show the banks, or authorised deposit-taking institutions, have $413 billion of loans out to the investment property market, of which $369 billion are interest-only.

"That's 89% of people who are so confident that their property price is going to go up that they think they don't have to pay off capital," he wrote.

"Of course, you can't blame them, these days the banks don't want to get paid back, they simply want to lend more, which is why the big number on your loan statement is now a big green number, which is how much you can instantly borrow again.

"But if you don't pay off the capital, as 89% of the property investment market obviously doesn't think you have to, property investors are not building that green number, in which case they are not saving; in which case the thesis behind property investment is simply one of speculation on property prices going up.

"Nothing wrong with that - unless, of course, they don't."

He concludes that without paying off any capital there's no "green buffer" against rising interest rates, falling property values, tenant issues or maintenance costs.

He adds that the whole property and bank industry is doing exactly what the equity market industry does: "Presenting positive long-term returns in hindsight to cover up the specific risks of their asset class, to get investors to buy and give a developer a profit, an agent a commission and a bank an interest rate margin."

"As the front page of the newspapers said this week, 'Investors face interest rate shock'.

"At least 89% of them do.

"Ask anyone who's been an estate agent or a stockbroker for 30 years: there's no free money.

"But the bunnies never stop turning up with stars in their eyes.

"Nothing ever changes."

He cites the latest APRA comments on property exposures of ADIs (authorised deposit-taking institutions) that the high proportion of investment lending was APRA's biggest cause for concern in the current market. 

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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