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(22-11-2014, 04:47 PM)specuvestor Wrote: [ -> ]

(21-11-2014, 10:31 PM)greengiraffe Wrote: [ -> ]Coca-Cola shows bubbles barely matter for seasoned investor
ROGER MONTGOMERY THE AUSTRALIAN NOVEMBER 22, 2014 12:00AM

I’LL wager you never thought Coca-Cola had anything to do with property investing. Well, kick back and read on as I demonstrate how Coke can make you a more sensible property investor.

The story of an owner of Coca-Cola shares at the time of its IPO in 1919 is a useful allegory for thinking about how to invest successfully in any asset class. In 1919 Coca-Cola came to the stockmarket at $US40 per share. A year later Coca-Cola shares were trading at $US19.50 — the result of losses stemming from rising sugar prices and a perpetual contract Coca-Cola had with its bottlers to supply syrup for a fixed $US1 a gallon. The only reason the shares traded at $US19 was because investors were selling from the fear of losing even more money.

But what would have happened if your grandparents or great-grandparents had bought a single share in Coca-Cola in 1919 at $US40 and held on through the subsequent decline to $US19.50 in 1920, then on through the great crash of 1929, the subsequent depression of the 1930s, World War II, a baby boom, dozens of other wars, skirmishes and nuclear missile crises, an oil crisis. Not to mention the Cold War assassinations, the fall of the Berlin Wall, yuppies, innumerable recessions, booms, busts and scandals, as well as a war in Vietnam, two in Iraq and then ... the global financial crisis?

Think of all the newspaper articles advising you about what to do with your shares through all of this! If, however, your relatives had kept that single share in the family, taken the splits and reinvested all their dividends, they would have accumulated 126,321 shares on January 8, 2010, and their investment would have a market value of $US6,966,603.15.

And in the nearly five years since, there have been another 14 dividends paid and another two-for-one split. As of August 2014, that original $US40 investment is now worth $US11.7 million — a compounded return of just over 14 per cent a year.

So how does this relate to property? Well there’s a lot of concern about prices being in a bubble just now (which they might be). Low interest rates have propelled demand for investment property loans to 10 per cent higher annual rate in the most recent quarter, suggesting prices could head even higher in the near term.

Eventually there will be a rate rise and this will first hit those crazy people who have borrowed significant amounts of money on “interest only” and with high loan-to-value ratios. These loans could be Australia’s answer to the US subprime loans of the GFC. And how far could prices fall?

It may surprise many that prices for Australian homes have previously fallen 10 per cent or more three times in the past 35 years. Those living in Mosman, on Sydney’s north shore, and other hard-hit suburbs around the nation will know that prices fell a great deal more than that during the GFC.

Rates will eventually rise and if they rise sufficiently, it won’t be necessary for people to lose their jobs for prices to fall. The marginal buyer will simply pull their bid and anyone on the brink may be forced by their bank to exit while keeping their job to pay the bank back.

US Federal Reserve officials are already warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates.

But should you be worried? Perhaps, yes, if you are heavily leveraged. But think about this: In the next 40 years our population will be 20 million greater than it is today. In 2006 there were 2.6 people per household, which means in the next 40 years we might need 7.7 million new homes. Australia is on track to build just 143,800 homes this year. That’s down significantly from 2003, when we built 168,580 homes. Recessions, higher interest rates and a slowing China will produce lumpy new housing volume, while the population steadily rises. Think about the Coca-Cola story and you will have some insights into how and when to buy property.

Roger Montgomery is the founder of Montgomery Asset Management.

Wow fantastic article

Only because I can copy and paste & change the heading to
1) benefit of compound returns
2) benefit of old age especially 95 years old
3) benefit of investing in emerging markets
4) benefit of investing in growth stock
5) stocks for the long run (with credit to permabull Jeremy Siegal)

and it will make sense to the academic

(18-11-2014, 08:47 AM)specuvestor Wrote: [ -> ]OTOH I'm sure Aussie real estate prices will be higher than now in a century's time. But i doubt it will be comfort to those that will go through the coming correction and are highly leveraged. Nothing new under the sun as it happened to countries the size of Australia but newcomers will have to learn the cycle over again.

http://www.valuebuddies.com/thread-5501-...#pid100696

http://www.valuebuddies.com/thread-4576-...#pid101102

You should read the above no worries article by a AMP man as well....

Iron ore, coal slumps hit boom towns

Jonathan Barrett
350 words
22 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Home prices in many of Australia's once booming mining towns are haemorrhaging, as prices of two of the country's key export commodities, iron ore and coal, have slid.

Houses in the iron-ore rich Pilbara, coal-laden Bowen Basin and uranium and copper-full Roxby Downs have dropped by between 8 per cent and 37 per cent in the past 12 months, according to RP Data.

The same towns are down by as much as 41 per cent over a three-year period, although a few have withstood the commodity price downturn better than others.

When the census was taken in August 2011, 10 urban centres met the criteria of "booming mining town". The Australian Bureau of Statistics attributed that label to towns with high population growth and a high percentage of residents working in the resources sector.

Most of the designated boom towns are located in Western Australia's Pilbara – Karratha, Newman and Port Hedland – and Queensland's Bowen Basin – Clermont, Dysart, Emerald, Middlemount and Moranbah. The remaining two towns are Roxby Downs, in outback South Australia, and Weipa, on the west coast of Queensland's Cape York Peninsula.

Roxby Downs services BHP Billiton's Olympic Dam mine, which contains copper, uranium, silver and gold, while the town of Weipa was built to cater for bauxite mining, now conducted by Rio Tinto.Overdevelopment blamed

Terry Ryder, the founder of property research site Hotspotting.com.au, said the amount of residential development in a mining town had an even greater impact on prices than the commodity cycle.

"The single biggest factor is what developers have done," Mr Ryder said. "In some towns, like Gladstone, developers have just built way too many homes. I just think they need to exercise more commonsense."

Newman, in the east Pilbara region, is one of the few mining centres without significant house price falls in the past couple of years. This is largely put down to demand driven by the construction of Hancock Prospecting's Roy Hill mine, 110 kilometres north of Newman.


Fairfax Media Management Pty Limited

Document AFNR000020141121eabm0001

The best 100 suburbs right across Australia
PUBLISHED: 13 HOURS 23 MINUTES AGO | UPDATE: 10 HOURS 13 MINUTES AGO

The best 100 suburbs right across Australia
MATTHEW SMITH

If the property market was hot this time last year, the best adjectives property watchers could use to describe the market this time around is mild and uneven.

Even in the prized Sydney market, which boasts stronger economic activity relative to the rest of the country and where property demand remains strong in key inner-city suburbs, year-on-year median price growth rates have halved from the almost 14 per cent on average levels they reached during the booming December 2013 quarter period.

Growth rates in Perth, Adelaide, Brisbane and Hobart have remained between 3 per cent and 5 per cent in the past 12 months and Canberra has been lower.

But that doesn’t mean savvy vendors and investors won’t be able to track down opportunities that stand out above the rest (see interactive below). With state by state growth rates on average reaching a plateau over the past year, some suburbs still managed year-on-year gains in median house prices sales of more than 30 per cent.



Suburbs in Victoria around Melbourne, including East Hawthorn, in NSW in Sydney’s inner-west, the upper north shore and south-west, and in Darwin’s Parap and Nightcliff, all rose well above the national average thanks to idiosyncratic demand within those regions.

Around Melbourne, the pockets of growth in the past year could be attributed to some ethnic group-driven demand, says Australian Property Monitor’s (APM) chief economist, Andrew Wilson. APM is part of Fairfax Media – which owns Smart Investor – and compiled the exclusive Best Suburbs data over the following pages.

In addition to leafy East Hawthorn, other Melbourne suburbs, including North Balwyn in Melbourne’s East and Glen Waverley, in Melbourne’s South-East have benefited from demand generated by the strong activity of Australian-Chinese buyers who have pushed up prices to peak levels compared with other suburbs in the region, Wilson says. This theme is likely to continue to be factored into expected growth rates in the year ahead, according to Wilson.

Glen Waverley and North Balwyn are both expected to continue to show strong median price growth potential in the year ahead, according to the APM data.

POCKETS OF ACTIVITY

Meanwhile, pockets of buyer activity in the mid to upper ($1.5 million to $2 million) price range in Sydney are driving strong growth rates, with Kensington in the east, Artarmon and Epping in the north and Birchgrove in the city’s inner-west all continuing to show strong activity which is driving decent price growth, Wilson says.

Much of the demand in this mid to upper end in Sydney is being driven predominantly by owner-occupiers, rather than investors, bringing forward buying decisions with a view to making the most of the low interest rate environment, Wilson explains.

Trading and price growth at the very high end in Sydney has slowed and will continue to remain low over the next year, Wilson predicts. He says after some prestige properties sold towards the end of last year and in early 2014, uncertainty in the equities markets will likely keep Sydney’s most expensive properties in the hands of their current owners for the time being.

South Australia’s capital, Adelaide, is also showing positive growth in the mid to upper homes price range between $500,000 and $700,000. The beachside suburb of Glenelg North and Fullarton, in the capital’s metro east, as well as the leafy suburb of Norwood have all shown strong growth characteristics in the last year, according to the data.

Some of the less convincing demand trends in the country include Brisbane and Perth, according to APM.

There was an expectation 12 months ago that Brisbane and its inner-city suburbs would catch up to the growth rates in Sydney and Melbourne but Queensland’s capital reached a plateau in line with the rest of the country average, Wilson points out.

There were no Brisbane suburbs with above 30 per cent year-on-year median house price growth. The inner-city suburb of New Farm saw among the strongest activity and growth rates in the state over the past year, with Miami on the Gold Coast also proving to be a strong performer from a relatively low base.

However the suburbs that were expected to shoulder Brisbane house prices into line with the gains experienced in other metro areas have failed to perform. Sought-after inner-city locations including Hamilton, Kangaroo Point and East Brisbane registered conservative growth, and it is expected to plateau again in the year ahead.

Meanwhile, with unemployment remaining persistently high in Western Australia, the slowdown in the resources state will continue to put pressure on prices in Perth and surrounding suburbs.

“Perth grew consistently for two years [and] was the earliest of the capitals into the growth phase,” Wilson says. “That market ran out of steam at the start of this year and has been flat since.”

Looking forward, Wilson cautions the potential effect that new apartment construction might have on the inner-city apartment markets in Brisbane and Melbourne, with some experts also harbouring similar fears for Sydney.

RUNNING OUT OF STEAM?

December 2013 saw the peak of the pricing growth across all capital cities, according to Wilson. Since then all markets have generally tracked backwards, with Sydney remaining the most resilient, he says.

Wilson predicts Sydney’s year-on-year median house prices will grow in the 5 per cent to 7 per cent range on average for the next 12 months. He expects other capital city growth rates to be roughly in line with inflation between 3 per cent and 5 per cent over the next 12 months.

In the near future, Wilson expects growth rates above these levels will need to be driven by more fundamental economic factors such as improving job security, reducing unemployment and improving consumer confidence.

With the effects of the lower interest rate stimulus yet to kick the broader economy into gear, Wilson expects budget suburbs to fare the worst in terms of potential growth over the next 12 months.

Suburbs including Woodridge in Brisbane’s south, North St Mary’s in Sydney’s greater west and Cockatoo in Melbourne’s outer east have among the lowest median house prices in the respective cities.

Generally, Wilson says, the positive effects of the interest rates stimulus have already played out. The interest rate effect gave buyers more buying capacity in some cases to the tune of 20 per cent of the asking price of the home.

“The average repayment for the average loan dropped by 20 per cent – that meant there was a potential for 20 per cent upside in the growth in house prices.”

However because interest rates have remained flat for an extended period, the demand that flowed through into record clearance rates in Sydney has already worked its way through the system.

“Our wages aren’t increasing enough for us to keep increasing house prices at the levels they’ve been pushed up over the past 12 months,” Wilson says. “That’s why [growth rates] will remain around the inflation rate for the next 12 months [in most cities].”

This story first appeared on www.afrsmartinvestor.com.au

The Australian Financial Review

Bank of China aims to double Australian mortgage lending
PUBLISHED: 25 NOV 2014 11:42:42 | UPDATED: 25 NOV 2014 12:59:08

Bank of China plans to double its mortgage lending in Australia in two years

Bank of China plans to double its mortgage lending in Australia in two years and wants to offer more home loans to locals, the bank’s country head said.

There is demand for dwellings from Australians of Chinese origin and investors from the mainland, Shanjun Hu said in an interview last week in Sydney. Bank of China hopes to reach more non-Chinese borrowers in the country through a product distribution agreement with Australian Finance Group, the nation’s biggest mortgage broker, he said.

“I think more and more also the local Australians will be our customers,” Hu said. Australia’s market “needs the capital, the investment from outside,” he said.

Bank of China is seeking a bigger slice of a $1.4 trillion mortgage market that’s almost 80 percent controlled by Commonwealth Bank of Australia and its three largest rivals. Chinese buyers overtook Americans to become the biggest foreign acquirers of Australian real estate in the 12 months through June 2013, government data showed.

Lawmakers are probing foreign property ownership and the central bank has signaled concern about prices even as it holds its cash target at a record low of 2.5 percent. Residential property prices across the nation’s capital cities climbed 8.9 percent in the year to October, according to figures from information provider CoreLogic.

CHINESE BROKERS
Bank of China, the fourth-largest Chinese lender by market value, held $672 million of Australian mortgages as of September 30, according to Australian Prudential Regulation Authority data. That’s up 13 per cent from a year earlier, about twice the pace of growth for the Australian home-loan market as a whole.

“In the coming two years, I hope that we can double the amount” of mortgages that Bank of China currently has, Hu said.

Commonwealth Bank, Australia & New Zealand Banking, National Australia Bank and Westpac Banking held $1.08 trillion in mortgages at the end of September, APRA data show.

Bank of China’s mortgage customers include people of Chinese origin who come to the bank through Chinese brokers based in Australia, Hu said. It has nine branches across four cities and about 300 employees in Australia, he said.

AFG, which signed an agreement with Bank of China on October 28, is a mortgage-aggregating group with more than 2,100 brokers across Australia and which processes more than A$4.5 billion of financing a month, according to its website.

The company, based in Perth, is planning to offer Bank of China products initially through about 30 brokers in the state of New South Wales before expanding into other regions, said Mark Hewitt, AFG’s general manager of sales and operations. The first mortgage applications are likely to begin coming through within the next week or so, he said by phone yesterday.

NATURAL FIT
“Probably about 25 per cent of the business we generate in New South Wales is for either people of Chinese origin or overseas Chinese investors, so there’s just a natural fit there with Bank of China,” said Hewitt, noting that the agreement between the two companies represented an opportunity for the Beijing-based lender to expand beyond its traditional base.

Bank of China has also lent out $9.7 billion to corporate customers as of September 30, up from $7.4 billion a year earlier, according to APRA data. It plans to provide bridge loans and enter agriculture, food and infrastructure financing, Hu said. It currently offers clients syndicated loans as well as project and trade finance.

Total loan volumes from Chinese banks have exploded since the global financial crisis, rising to more than A$15 billion as of Sept. 30 from less than A$500 million in April 2008, APRA data show. Economic ties have deepened between the two nations over recent years, with Australia ramping up mining exports, China emerging as its largest commercial partner and the two nations agreeing to a free trade deal.

“We are very optimistic for the coming years,” Hu said. “We are ready to provide more services here.”

Bloomberg

FIRB ‘failing’ to enforce rules on foreigners buying Australian homes
THE AUSTRALIAN NOVEMBER 26, 2014 9:01AM

Rick Wallace

Journalist
Melbourne
NEW details have emerged of the near-total inaction of the Foreign Investment Review Board in penalising foreign investors who illegally buy established homes in Australia.

The FIRB has told the chair of a parliament committee inquiring into foreign investment in real estate that is has not asked a single offshore investor to sell off an illegally acquired house since 2008.

The Australian has previously revealed that the FIRB has not conducted a single prosecution since 2006 despite a flood of foreign buying that has seen overseas investors purchase tens of thousands of established homes in Australia.

House economics committee chairwoman Kelly O’Dwyer said the revelation was more evidence of serious deficiencies in the FIRB’s approach to enforcing laws about investment in established homes.

“With respect to residential real estate, the Foreign Investment Review Board has failed in its responsibility of monitoring and ensuring compliance of Australia’s foreign investment framework,’’ she said.

“Not a single compulsory sale of illegally purchased housing since 2008 and an inability to provide data on voluntary sales, it all points to a failure of leadership at FIRB on the issue of foreign investment in residential real estate.”

While Australia allows foreign investment in off-the-plan housing, foreigners are banned from buying established homes in all but a narrow range of circumstances.

The main loophole, which has been exploited ruthlessly by offshore investors and their local facilitators, is a clause allowing temporary residents to buy a home to live in while in Australia.

The rules demand that these investors sell the home within three months of leaving Australia, but the revelation that there have been no forced divestments of properties since 2008 exposes the gaps in the FIRB’s enforcement.

In 2008/9, foreign investors bought 2450 established homes worth $1.81 billion. By 2012/13 that figure had risen to more than 5000 homes to a value of $5.42bn, amid a wave of buying from Chinese investors, some of whom are anxious to park their accumulated wealth out of reach of Chinese authorities.

Earlier this month The Australian revealed that the department of immigration does not share data with the FIRB on when property owners’ visas expire or when they leave the country.

Buyer advocates in areas dominated by Chinese buyers report their presence is adding at least 10 per cent to property prices, as local bidders struggle to compete against the flood of money from China.

Offshore buying brings together the themes of housing affordability, immigration and foreign investment and has thus rapidly become a hot-button issue politically, something MPs are beginning to realise.

The house economics committee is expected to hand down its report later this week. As reported by The Australian, the report is expected to contain a tough new civil compliance regime to target law-breakers with large fines. Foreign investors would also be charged an application fee of up $1500 per successful application under its recommendations.

The report is expected to be heavily critical of the FIRB’s performance under chairman Brian Wilson, a former investment banker who has overseen its ultra light-touch regulation of investment in established housing in Australia.

Must Read For Those Who Wish To Understand More On Aussie Property Mkt

Forget the gloom and doom, we need a boom before bust
FRANK GELBER THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM

THE extraordinary clamour of concerns about the housing ­market continues unabated.

Because so many are interested in housing, for journalists and commentators alike this is an easy route to an audience. Everyone wants to discover the fatal flaw, hence the popularity of doom and gloom stories.

“The market is overvalued,” they say.

“It’s a bubble and will burst.” “It’s not affordable for owners or renters.” “There are too many investors and not enough owner occupiers.” “Overseas investors are causing price rises and then leaving apartments empty.” “Negative gearing isn’t fair.” “High borrowings are feeding the boom and a risk to banks, so we need to regulate lending.”

Give me a break.

This is just another cycle. It’s not an out-of-control boom, or a bubble.

The unusual thing is the weakness in the decade before the upswing.

Prices were relatively flat and we weren’t building enough. That led to the shortage of housing which is driving the recovery. There is still a deficiency of stock, which will underwrite further increases, albeit at a slower pace.

As usual, the markets are out of synch. The shortage is greatest in NSW and Queensland.

There is some question about whether demand has been overstated in Western Australia, where the upswing began, by counting 457 visa workers who only lived in Australia while working.

Tasmania and the ACT are oversupplied while South Australia is balanced. And the sheer quantity of inner-city apartments coming on stream in Melbourne will cause the Victorian upswing to peak early.

It’s business as usual. And what a relief to see strong housing markets after a long, difficult period.

Why would you want to curtail the housing recovery? We need the stock. And it’s boosting a weak economy.

Why would you want to intervene? There’s nothing unusual about this cycle. It’s not a bubble. A bubble is when expectations of capital gain become self-fulfilling as investors drive up prices. The bubble psychology causes runaway prices.

This isn’t it. Investors are much more cautious in this cycle, at least to date.

As for overseas investors, they didn’t push up prices, they underpinned building and helped to kickstart the recovery.

We need this upswing. Indeed, we needed some price rises to stimulate the development that started the recovery. Let it run its course.

That’s not to say there are no ­issues. Certainly, affordability is a problem for some parts of the community, particularly low-­income renters and first home buyers.

For that reason, some may say housing is overvalued and rents too high.

Others say housing is overvalued relative to income. But, in a market sense, I don’t know what overvalued means. I do know that, if prices were much lower, we’d be building a lot less and the undersupply would be worse.

The real question is why prices are at their current levels.

The ­answer to how they got here is partly historical in terms of ­periods of excess demand driving prices through the cycle. But, more fundamentally, it’s about the cost of residential sites, including infrastructure charges, which have put a floor under prices.

State governments, starved of revenue, long ago introduced a user-pays logic seeking to recoup costs by upping infrastructure charges whenever development profits appeared excessive.

That effectively ratchets up the floor under housing prices. The other side of the coin is that when prices fall development is no longer ­feasible.

That’s what happened in NSW early last decade, the ­rationale being that government was taking excess profits from “greedy developers and land­owners” (their words).

Hence the weakness of the housing market leading to the current housing shortage.

The only way to contain price increases is to make plenty of sites — both infill and fringe — available at a reasonable cost.

The rent question is trickier. With many households priced out of the market, the proportion renting is increasing.

And, with governments reluctant to provide stock, we need investors to own the housing that renters occupy.

Currently, investors are willing to accept surprisingly low yields for housing investment. In a market sense, this means rents are low. If we frighten them off, yields, and hence rents, will rise. We’re on a good wicket. Be careful.

Certainly, some parts of the community can’t afford market rents.

That’s a welfare problem, not a market problem.

Yet investors are the target of many of the criticisms of the residential market. Is the market unbalanced because of the surge of investment?

A few years ago we were worried whether investors would ever return to underpin a recovery. Now that they have, some are complaining that there aren’t enough owner-occupiers. Government subsidies play havoc with the timing of owner-occupier purchasers, but we’ll need all the investors we can get.

Should we allow negative ­gearing? It’s not the main game. Should we introduce tighter ­prudential regulations? That should be about risk to the banking ­system rather than a lever for the housing market. And there would be unintended con­se­quences, both in the short and ­medium term. Why would you want to risk it?

We want the investment, both because we need the stock and for the boost to the economy. We should think twice before intervening. Be careful what you wish for as it could do damage.

These cycles will in any case run their course. Let them. If you so badly want the market to bust, can we please have a boom first.

Frank Gelber is chief economist for BIS Shrapnel.

fgelber@bis.com.au

Be careful what u wish for... well we got our wishes in singapore lol

Visa checks, fines loom in bid to keep foreign property buyers at bay
THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM

Rick Wallace

Journalist
Melbourne
FOREIGNERS would face immigration checks, heavy fines and new application fees under plans to end the exploitation of laws governing the Australian property market.

In a report that is expected to be ­critical of the performance of the Foreign Investment Review Board, a parliamentary committee is expected to recommend data matching between immigration and investment authorities to end illegal foreign purchases of established homes in Australia.

A ban on marketing real estate developments solely to overseas investors, and a nationwide land-transfer database to track the ­nationalities of offshore buyers, are thought to be among the other recommendations. The report will put the onus on Joe Hockey to take a plan to cabinet to tighten regulation of offshore investment in real estate, amid growing community concern about the impact of foreign buying on affordability.

The Australian understands the committee will recommend that immigration authorities automatically advise the FIRB whenever a property owner’s visa expires and they depart the country. This would help close the main loophole through which illegal buying occurs.

While foreigners are generally barred from buying established homes, they are ­allowed to own them while in Australia, provided they sell within three months of departure.

As revealed in The Australian, the FIRB has been struggling to police the laws.

It has not forced a single ­investor to sell an illegally ­acquired home since 2008, during which time foreigners have bought tens of thousands of established homes.

Along with mandating data-sharing between the Immigration Department and the FIRB, which currently do not co-operate in this area, the committee is also ­expected to recommend fees of between $500 and $1500 per ­successful application from a ­foreigner to buy a property. The proceeds of the fees would be set aside to pay for investigations and enforcement to end the exploitation of laws that has occurred on the FIRB’s watch.

The house economics committee’s recommendations are contained in a report to be tabled in federal parliament today.

The committee, chaired by Liberal MP Kelly O’Dwyer, is also ­expected to recommend that new fines be imposed for illegal purchases. It is believed the penalties would be set at a percentage of the sale price of the property.

The committee has heard evidence during its inquiry into foreign investment in Australian real estate that foreign investors consider that the $85,000 maximum penalty under the current regime is simply “the cost of doing business”, in the unlikely event of them being prosecuted.

S&P backing macro-prudential tools
THE AUSTRALIAN NOVEMBER 28, 2014 12:00AM

RATINGS agency Standard & Poor’s says Australia’s banks could benefit from the introduction of macro-prudential measures to cool the property market over the long run, given such tools may help reduce risks in the ­financial system.

As regulators consider introducing macro-prudential methods to help quell pockets of the property market, S&P said a move was “increasingly likely”.

“We do not expect the application of macro-prudential measures, by itself, to have any immediate ratings impact, either upward or downward, on Australia’s financial institutions ratings,” said S&P credit analyst Andrew Mayes. “Nevertheless, we believe application of macro-prudential measures could contribute to a dampening in emerging pressures on economic imbalances and credit risk within the Australian economy, reducing the potential risk to financial system stability by reducing the risk of a material fall in residential property prices.”

Expectations that macro-prudential tools will be employed to rebalance the housing market were sparked last month after RBA assistant governor Malcolm Edey revealed the central bank was in discussions with APRA about how sound lending practices could be reinforced, particularly when it comes to finance for investment housing.

Official interest rates have been at a record low 2.5 per cent for the past 14 months as the RBA deals with low economic growth.

Mr Mayes said any macro-prudential measures were likely to “trigger a slowdown in investor and interest-only residential mortgage lending”.