Business-related personal insolvencies, relationship failures to increase property sales

Rising interest rates have been linked to a jump in business-related personal insolvencies and signs are emerging more ‘distressed’ properties are going on the market.

There has been a rapid rise in the number of business-related personal insolvencies around the country as signs emerge of more so-called “distressed” properties being put on the market.

According to the Australian Financial Security Authority, business-related personal insolvencies rose 25.2 per cent in the September quarter, compared with the same period in 2022, while bankruptcies were up 21 per cent.

Jirsch Sutherland partner Stewart Free said that historically, personal insolvency appointments lagged 12 to 18 months behind corporate appointments.

“Since the start of 2023, corporate appointments have increased markedly. In addition, interest rates, inflation coupled with relatively low wage growth has seen those living on the margins tipped into financial distress,” he said.

Mr Free said the increase in personal insolvencies was a major factor in the number of distressed properties on the market – the majority of which were residential.

According to the latest SQM Research, the number of residential properties being sold under distressed conditions rose by 1.3 per cent in September to 5246, which was up from the 5180 recorded in August.

The report said the ACT led the rise in distressed selling activity with an increase of 11.1 per cent compared with the previous month, followed by NSW by 4 per cent, Western Australia 3.6 per cent and Victoria 1.5 per cent.

Adding to the pressure, the latest Alares Credit Risk Insights found the big four banks continued to ramp up their court recoveries, as higher interest rates impacted the serviceability of debt.

Jirsch Sutherland identified another trend – an increasing number of bankruptcies as a result of marital/relationship breakdown.

“I definitely believe there’ll be more properties on the market as a result of marital/relationship breakdowns,” Mr Free said.

“A relationship breakdown will usually result in the parties selling the jointly-owned property so as to sever any further financial entanglement. Also, there are many instances where either party cannot service the debt solo (in the sole name), so selling the property is the only alternative.”

Interest rate rises are behind an increase in business-related personal insolvencies.

In the commercial sector there had been a slow rise in the number of distressed properties on the market, although well under numbers during the global financial crisis.

RWC Western Sydney managing director Peter Vines said the rapid increase of interest rates triggered more distressed sales.

“You can’t increase rates this quickly without seeing more of those kinds of sales,” he said.

“It gets to a point where you can’t hold on any longer. A lot of people saved money during Covid but they’ve spent that money now.”

Mr Vines believed the pain from increased interest rates would continue to be felt in 2024.

“When rates rise like this consistently they hurt, and instead of properties making you money, they cost you money,” he said.

“There’s interest rates but there’s also taxes; land taxes are at record highs. People start to think ‘I better have some conviction for this long term, otherwise what’s my reason for holding?’

“There are people out there struggling unfortunately, and I think that will continue next year.”

Possibly as a sign of what is to come, a RWC auction in Brisbane on December 14 has five properties on the market through mortgagee/receivers out of the 10 for sale.

The five properties include an allied heath investment in Greenslopes and a development site in Bowen Hills in inner Brisbane, a care facility in Toowoomba and a site in Tweed Heads.

RWC head of research Vanessa Rader said receiver sales would increase across all types and locations.

“Savvy private buyers, opportunistic purchasers and new syndicates will emerge looking to capitalise on the difficulties of some owners to hold their assets,” she said.