We’re often accused of living in a bubble in Canberra - of privilege, of politics, of enviable weather, you name it. But one bubble we’re yet to see is the much-talked-about “real estate bubble” that floats around endlessly whenever property prices come up.
Director of project planning at Independent Property Group David Shearer says Canberra’s market is too tightly controlled to be subject to soaring prices or dizzying drops, while Clarity Homes Loans director Mark Edlund says Canberra’s real estate market has escaped the close scrutiny of the banks thanks to the absence of the “bubble effect”.
But while the capital’s real estate market is ticking along quite nicely - one of the highest performing in the country after Hobart - it won’t escape the current credit squeeze that’s plaguing Sydney and Melbourne. As banks tighten their lending requirements and buyers find it more difficult to secure a mortgage, still more after finding themselves over-extended into the market due to previously lax laws around credit. Blame the banks, we all say, having watched incredulously as the revelations from the banking royal commission came thick and fast over several months of this year.
It can be hard to find sympathy for those who’ve borrowed more money than they can afford. Even before the royal commission, back in 2015, the Australian Prudential Regulation Authority moved to raise interest rates for investors over owner-occupiers, in an effort to dampen investor speculation and discourage buyers from lying about what they intended to do with their properties. Buyers were, essentially, defrauding the banks (rather than the other way around), and the market suffered.
But now that the shoe is on the other foot, it’s the banks who are clamping down on their own dodgy lending. The results are flowing onto the property sector, which relies on a continuing flow of mortgage finance. This is particularly the case for new apartment building projects, which, in Canberra at least, require about 70 per cent of units to be pre-sold before funding can be secured.
The narrative around the credit squeeze seems to be that it’s a finite state, but the reality is that if you find it hard to get a loan, maybe it’s because you’re not ready for one. A bank carrying out a realistic appraisal of your income and cash-flow before allowing you to commit to decades of debt should always have been the norm, and now, it appears, it is.
Shearer also points out that Canberrans tend to be conservative in what they buy and why, preferring to invest in the long-term, rather than speculating on price rises and profits through on-selling.
“Canberra is a very educated, accommodating but very conservative city, so Canberrans pick security over experiment pretty well all the time,” Shearer says.
When you put it like that, perhaps when the credit squeeze finally clamps down on Canberra, we should embrace it as our rightful state, rather than bemoaning the behaviour of banks in the first instance.