Showing posts with label leverage. Show all posts
Showing posts with label leverage. Show all posts

Sunday, June 9, 2013

BOQ warns about one bedroom apartments

"Bank of Queensland is worried about a surge in people borrowing money to invest in small apartments, citing Brisbane and Melbourne as concerning spots.

Of particular concern was self-managed super funds (SMSF) engaging in the tactic, BOQ CEO Stuart Grimshaw said.  He said the assumption was these one-bedroom apartments would appreciate in value, but it was  a "risky part of the market" for heavily borrowed SMSF funds.

"I don't think it's long before ASIC will start looking at some of the sales methodology," he said."

Source:  Courier Mail, page 77, 8 June 2013.

Be warned!

Tuesday, September 11, 2012

Home Truths of the Leverage Game

An interesting article by Chris Joye in the Weekend AFR, worth reading:

The Perils of Leveraging Property Investment


Wednesday, February 8, 2012

Extent of Losses

RP Data reported recently that Brisbane apartments in 2011 lost value of 6.5% (when looking a medium sales prices of apartments that actually sold in 2011).

Let's assume Mr Investor purchased a Brisbane apartment on 31 December 2010 as an investment for $485,000.  Assume that he borrowed 80% of the purchase price, including stamp duty.  Stamp duty is $14,850.  So the total purchase cost, including legal fees and bank fees, is just over $500,000.  Mr Investor put in $100,000 of his own money, and borrowed $400,000.

That apartment, if it went down 6.5% in value, is now worth $453,475.  That is a capital loss of $46,525.

So Mr Investor has had a capital loss of over 46% in one year.  That is the risk of leveraging.  A small decrease in value means a large capital loss where there is a leverage situation.  (If Mr Investor had to sell, he would pay over $10,000 in real estate agent fees, making his capital loss even greater.)  If values decrease further, Mr Investor will be completely underwater.  I suspect that there are many apartment owners in Brisbane who have little or no equity left.