Yesterday’s boom may trigger tomorrow’s problems

A forecast slowdown in Sydney price growth for 2016 could spell trouble for developers and investors who bought off the plan in 2015.

Starr Partners chief executive Douglas Driscoll said the Sydney boom is well and truly over, with prices likely to remain consistent throughout 2016 – partly because banks are unlikely to pass on any reduction in the official cash rate.

Mr Driscoll said that one consequence is that developers will become nervous and will be less likely to take risks.

“As market levels fall away slightly, some developers might struggle to cover costs,” he said.

“In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins.”

Towards the end of 2016, some investors might walk away from their deposits on the belief they over-paid in 2015 and the property has become too risky, according to Mr Driscoll.

Mr Driscoll said that some investors will also feel the effects of the investor crackdown, which began in earnest last May.

“Going into 2016, mortgage lenders will start freezing out investors, as lenders actually don’t have an obligation to provide the finance,” he said.

“Investors might have committed to an off-the-plan purchase as their mortgage lender considered them qualified to borrow at the time, but when it comes to the buyer needing the finance, there will be changes to lending rules, which, I think, is unfair.”

[Related: Sydney’s short-term pain means long-term gain]

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