Australia’s largest apartment developer and owner, Harry Triguboff, has issued a bluntest possible warning to the banking regulators, ASIC and APRA.
“If you keep directing the banks to lend less then there will be a property bubble burst of catastrophic proportions that will send the economy into deep recession.”
I emphasise that I am paraphrasing the Triguboff warning so everyone clearly understands it. I fully realise that there will be cries from my readers that Triguboff is talking his book and is biased.
And that’s probably right, but as the owner and CEO of Meriton, he also understands vast areas of the residential property market in Sydney and Brisbane far better than APRA, ASIC and the Reserve Bank.
Indeed it was the blunders of these bodies along with successive treasurers and state and local governments that caused the market to get out of control.
The bank regulators and the Treasurer Scott Morrison are now taking dangerous actions in an area where they have a poor record.
And because there is little or no co-ordination between the bodies and people involved the risks are multiplied.
For example, when Scott Morrison smashed confidence in superannuation and capped contributions, many Australian savers switched to negative gearing houses which along with extra Chinese buying triggered the latest price rises that in turn triggered extra bank regulator clamps creating the latest dangers.
And there is one area where my knowledge confirms the Triguboff warning. If there is a property bubble and it bursts then the ramifications will go far beyond property, as I explained last week in my retail coverage.
And remember that these property dangers come as we prepare for an energy crisis created by the energy vandals who we elected to power in NSW, Victoria and South Australia, who took badly-thought-out actions that pushed power and gas prices through the roof and created grave dangers of blackouts and gas shortages.
But instead of my paraphrase here is what Triguboff warns in his words:
“APRA and ASIC say there is a bubble. I say there is no bubble.
“But APRA and ASIC direct the banks, so if they want a bubble, then there will be a bubble because banks will lend less and less at the directions of APRA and ASIC. Eventually there will be a bubble.
“If banks were allowed to lend as much as they think is prudent then there will be no bubble.” The bank must decide whether the client is able to repay or not.
“Prices rose in Sydney not because the banks were reckless — it was supply and demand. “Sydney is today probably the most desirable place on earth, that is why people were prepared to pay more. Sydney belongs to the world, not only to Sydneysiders.
“Now let’s assume that there is a bubble. It will be catastrophic. Not only will the banks be running to the commonwealth government for help, but also most people in Sydney (and Melbourne) will become poorer because their properties will drop.
“Already the building industry is contracting. If APRA and ASIC force a bubble to burst there will be a rise of unemployment. Today many businesses are vibrant only for one reason—higher property prices.
“They either sold their real estate to developers at a high price because floor space ratios were raised, or, if they did not sell, the book value of their businesses rose because of property. Now if there is a bubble and their properties lose value then banks will send them broke”.
Triguboff believes we have a situation where the Reserve Bank is scared to raise interest rates because there is no great boom in anything but real estate.
On the other hand the banks are not lending enough so they are lifting their interest rates.
The community wants young people to buy houses “yet we say the prices will fall. Do you think that they are fools?”
Eventually people won’t pay their high rates and the properties will drop.
And then the crisis spreads. Rents rise because new building slumps; people’s incomes drop; and the governments will not be able to sell the properties they need to fund infrastructure spending. So that’s the Triguboff warning.
In my view we have a series of regulators and other players who are attempting to slow down the property boom and rectify past mistakes but have not previously attempted such a task so are inexperienced and are not co-ordinated.
For as long as I can remember Triguboff has been preaching the same set of actions to curb the boom. But for the record (albeit worn) here are the simple Triguboff solutions:
* The NSW planning department and councils (add Victoria) have to become efficient like Queensland. This will bring down the cost of building and the prices will stop rising. To illustrate, to gain permission to excavate takes one week in Surfers Paradise and two years in some Sydney councils.
“The tragedy in Sydney is that we have good people such Lucy Turnbull the chief commissioner of the Greater Sydney Commission, who wants to help, minister Anthony Roberts who wants to help and some councils who see the problem. But they are only now starting to repair the situation. We must give them a chance and see what happens”, Triguboff says.
* Our population is rising quicker than ever and is gaining a further boost by students and tourists. Sydney never caught up with the demand, which was further boosted by foreigners buying dwellings. Supply has to catch up with demand and that means that credit must be available to developers, although that is not a Meriton problem.
And the future? Triguboff says that in an ideal world: “Prices will not fall, nor should they gallop ahead. We had a very stagnant apartment market for many years. So prices had to catch up. They are not rising now”.