Property Investment Loans and the Luxury Home Market Still Suffering


Both the luxury homes and the investment property market are still feeling the pinch of the credit crisis, with loans hard to come by and substantial excess inventory. The process of arranging loans to buy property has been drastically affected since the Lehman Brothers crash, and most lenders have increased their lending criteria by a substantial margin.

It is unlikely that a borrower will be able to arrange financing without at least a 25% deposit available. When one takes into consideration the increases in charges and fees to arrange a loan, realistically this needs to be closer to 30%. Until such times as the commercial property losses accrued and coming due over the next 18 months have been declared, lending is going to remain restricted and the markets will continue to devalue.

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Some markets may recover sooner than others, but the problem of overbuilding - particularly in the "luxury" segment is likely to continue to cause a problem for some time. With the end of the 125% "jumbo loans," and a return to rational lending, one has to wonder how much of the current inventory is going to be unsalable.

It is hard to accurately predict where the turn around point will be - and there will be one, but many are calling that point and have been calling it almost since the downturn began. But - I feel this problem is still unresolved and this one is too big to "hype," our way out of. The underlying fundamentals: lack of credit, upcoming banking losses in the commercial property sector, and rising unemployment have not changed.


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