As part of the "COMPASS Lending" practice, we often order valuation reports on behalf of the lenders to ensure they (the lenders), are satisfied with the elements of ‘security risk’. The factors that are considered in valuation reports are covered by these broad general areas:-
Location & neighbourhood (socio economic)
Land (council planning etc.)
Environmental (flood / fire etc.)
Improvements (quality)
Market segment conditions (depending on type of land & improvements)
Local economy impact
Market volatility
Recent market direct
In all the above the valuation firms risk rate from (1)-(5). The lower the number the lower the risk.
Without stating the obvious, over the last (6)-(8) weeks , every report that I have received reflects a (4) ‘high risk’ in the category of ‘Recent Market Direction’. There are a number of factors at play which include:-
The government regulators placing pressure on commercial banks to curb residential lending to investors via legislative reform (Basel).
The realisation by those investors that rental returns cannot just keep tracking up with capital appreciation, & therefore yields will effectively be reflecting negative returns.
A good way for the general public to confirm a slow-down in a hot property market is to simply look at random property listings, & see how long the ‘for sale’ or ‘for lease’ signs are sitting there. Anecdotal evidence is suggesting to me that buying into a property market for investment purposes at this point, could carry some significant risk in that any further capital appreciation may be a long time coming to fruition.
Please contact me on 02 6583 2211 if you would like to discuss the above in greater detail.
Michael Clarke