Nation’s home prices lift 10 per cent for year
THE AUSTRALIAN JULY 01, 2015 12:09PM
Kylar Loussikian
Journalist
Sydney
Home values in Australia’s capital cities have ended the year nearly 10 per cent higher after returning to growth in June.
Combined capital values rose 2.1 per cent for the month, ending the year 9.8 per cent stronger. The median dwelling price across Australia’s major cities now stands at $565,000, according to today’s CoreLogic RP Data figures.
Sydney recorded the highest increase in values, up 16.2 per cent over the 12 months, while Melbourne’s values rose 10.2 per cent. But the growth in home values in Melbourne eclipsed that of Sydney for June, up 2.9 per cent compared with 2.8 per cent in Sydney.
Tim Lawless, head of research at CoreLogic RP Data, said the interest rates cuts in February and May had contributed to the growth.
“Growth conditions had been moderating from April last year through to the end of January 2015,” Mr Lawless said.
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“With the RBA cutting the cash rate in February, there was an instant buyer reaction across the Sydney and Melbourne housing markets where auction clearance rates surged back to levels not seen since 2009. Capital gains once again accelerated and we are now seeing Sydney and Melbourne homes selling in record time,” he said.
“Sydney homes are selling in just 26 days and Melbourne homes are selling in 32 days.”
Detached house values increased by 10.6 per cent across the combined capitals for the 12 months to the end of June, while apartment values increased 5.7 per cent.
Mr Lawless said the underperformance of units compared with houses was likely due to higher supply levels for apartments compared with detached houses.
“The inner Melbourne unit market exemplifies the weakness in this sector, where it was revealed that almost one quarter of all apartments across the inner Melbourne region resold over the March quarter at a price that was lower than the purchase price,” he said.
Yesterday UBS economist George Tharenou said the national housing market showed “bubble like” features, and predicted national investment in housing would grow by 10 per cent into 2016 because of the record low 2 per cent interest rate.
The UBS analysis found household debt-to-income ratio was now at 157 per cent despite the average interest paid on home loans at a 12 year low of 8.5 per cent of income.
“There’s no near-term catalyst to see housing correct sharply, but the risks have clearly risen for the long-term stability of the economy,” Mr Tharenou said.
(06-06-2015, 09:48 AM)robert Wrote: [ -> ]illogical comments by specuvetors, agree others?
(04-06-2015, 10:04 AM)specuvestor Wrote: [ -> ]Stock prices and property prices or for that matter asset prices is a 2nd order outcome of economic strength and growth. Like we always say here in VB: focus on your business and your stock price will follow. Reversing the horse and the cart will have disastrous consequences and more so for policy makers. We can sell stocks and move on. But many citizen aren't mobile enough to just pack and go. Like Greece a whole generation will be destroyed if handled wrongly.
yeah, tell that to the "management" of sydney property market, focus on your business and your property price will follow.....................
does it make sense?
Investment home loans not slowing down
Clancy Yeates
584 words
1 Jul 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
The value of home loans held by property investors continued to expand at a quicker pace than the banking regulator's 10 per cent-a-year cap in May, new figures show.
Yet economists believe the boom in lending to landlords is probably near its peak, after recent moves by banks to put the brakes on housing investor loan growth.
Amid official concern about the rapid house price growth in Sydney especially, Reserve Bank figures on Tuesday showed housing investor credit growth remained at a seven-year high of 10.4 per cent a year.
This compares with the 10 per cent-a-year speed limit on investor credit growth announced by the Australian Prudential Regulation Authority in December - though banks have vowed to slow their growth over the coming months to comply with the cap.
The $1.3 trillion home loan market is being closely watched by economists because it has played a key role in driving up property prices, sparking fears some markets may be overheated. A surge in bank lending to property investors has helped fuel house prices, especially in Sydney, where dwelling prices rose 15 per cent in the last year, while Melbourne prices are also up 9 per cent in the year.
Tuesday's figures showed total housing credit growth - including the owner-occupier segment - also remained constant at 7.2 per cent a year.
The expansion occurred in the same month that the Commonwealth Bank, Westpac, ANZ and NAB all took steps to slow their lending to investors, including reducing the lucrative interest rate discounts offered to investors.
However, JP Morgan economist Ben Jarman said signs of a slowdown in new lending may not show up in RBA's numbers for a couple of months, because of a lag between loan commitments and the official data. "We are expecting the credit data to start to pull back, particularly in investor housing, within a couple of months," he said.
Commonwealth Bank economist Michael Workman said that the yearly pace of housing investor credit had been flat for the past three months, suggesting APRA's changes were starting to have some impact. "There are some early signs that the changes may be working and that monthly and annual investor housing credit growth may be at their peak in this cycle," he said.
Among the big lenders, Westpac, ANZ Bank and National Australia Bank all expanded their housing investor loan books at more than 10 per cent in the year to May, APRA data show.
NAB, which has the smallest home loan book of the major banks, has been growing quickest of the big four.
APRA's cap is not intended to control house prices, but to ensure banks make sound lending decisions.
Mr Workman said he did not think APRA's 10 per cent cap would have a major impact on the housing market, which was also being affected by the tax system and growing foreign investment in residential real estate.
He argued conditions for housing remained "favourable", citing very low interest rates, low levels of unemployment, and a growing population. "Investor interest in housing reflects the relative attractiveness of rental yields, and capital gains, in a low interest rate world," he said.
Key pointsHousing investor credit growth remained at a seven-year high of 10.4 per cent a year: RBA.
The $1.3 trillion home loan market has played a key role in driving up property prices.
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(20-06-2015, 12:22 PM)BlueKelah Wrote: [ -> ]Last to join the tightening.
Commonwealth Bank(Aus biggest bank) some changes to all residential loans starting on june 27th with higher serviceability assessment rates across the board:
* all loans will be assessed back up to 7.25% P/I(principal and interest payments.) this effectively negates all the benefit from past few interest rate drops.
* loaded 20% extra repayments on other debts
* reduction on acceptable overtime/allowances etc for salary.
* yield on property capped at 6%
* negative gearing removed from assessment of serviceability
=========================================
Despite high auction clearance rates and many high prices paid, overall in May prices have actually dropped in both Sydney.Melbourne for the first time since last year's boom.
House prices slip in ‘natural correction’
Effect of tightening is starting and will be seen in coming weeks/months as CBA the largest lender is only just implementing this end of June. The two main components that affect investor loan approval are always LVR/LTV and serviceability.
As with all asset bubbles, there must be credit behind fueling the quick rise up, once the credit dries up, prices will go sideways or more commonly drop when the lack of new credit causes a shift in sentiment.
'Flippers' make most of hot housing market
Su-Lin Tan and Matthew Cranston
810 words
4 Jul 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Property Quick profits spark rise in risky real estate tactic.
After attending a property seminar with renovation guru Cherie Barber two years ago, Trish Greening went from being a manager at weight-loss company Jenny Craig to "flipping" properties in Sydney as a profitable full-time job.
"The key is to buy, renovate and sell very quickly," she said. "The first home I renovated sold on the first day it went on market."
The practice of flipping - buying and reselling quickly with or without a renovation - is emblematic of hot housing markets, but it can be fraught with risk. Controversial US television series Flip This House was a precursor to the subprime crisis in 2009, and there is growing concern - including from Treasury secretary John Fraser - that the proliferation of television home renovation shows is encouraging people to over-invest in housing.
BIS Shrapnel's property economist Angie Zigomanis said flipping at this point in the cycle has plenty of pitfalls, including making up 7 per cent stamp duty on the way in and out. "There still might be opportunities to flip in the next 12 months, but it will become increasingly difficult as the market peaks and cools," Mr Zigomanis said.
But despite the risks associated with it, Ms Greening has renovated six houses in just two years - five near Campbelltown and one in Newcastle.
She has flipped five houses, making up to $100,000 a house, which is enough money for her to retain one for rental. "What catches my eye are houses which I can add value without too much structural change," she said.
"It could be very smelly, dated or even have termite infestation - it won't put me off."
Ms Greening started in the Campbelltown area, where the house prices were lower, and funded her purchases with a line of credit on her home. The houses she buys are between $300,000 and $400,000 and, after renovation, sell for $400,000 to $600,000.
Her last flipped house in Leumeah, 52 kilometres south-west of Sydney, sold for $480,000 in September 2014. She bought the 1930s house with a bad smell for $350,000 and renovated it for $60,000, making a profit of $70,000.
"I will consider flipping in central Sydney when I have enough in the bank," she said.
Equity is the key to flipping, Mr Zigomanis said. "If you don't have enough equity behind you, then you could easily get caught out."
Professional Adelaide property "flipper" Charyn Youngson said the difference between flipping in a hot market and a quiet market was the initial outlay. "In an 'up' market you will need more money to do a reno with higher specs," she said. "You have to put a granite benchtop in rather than a laminate one. You might have to put in Smeg or Miele products rather than a cheaper kitchen package."
Cherie Barber, who inspired Ms Greening's new career, said a "down" market was better for flipping.
"People are forced to sell their houses below market value when you buy them," she said. "When the market is quiet, renovation products are cheaper, and typically it is then that the profits are the best."
With the Sydney and Melbourne markets booming, there were many people having a look at flipping, Ms Youngson said.
CoreLogic RP Data estimates that about 6 per cent of residential properties sold in Australia were sold again in less than two years. "Flippers" have to pay stamp duty and capital gains tax when they buy and sell, but they can reduce their capital gains by including the costs of renovation and ownership in the cost base of properties.
"There are more flippers than you can imagine," Ms Youngson said.
"A big percentage of flippers are women. I get calls from women in their 40s and 50s wanting to boost their income and grow their wealth.
"Women are disadvantaged in lower earnings, time out of workforce, have very low levels of superannuation or have had a marriage breakdown, and the instant profit and equity from renovations helps women to fast-track extra income, plus get them out of jobs they hate."
Ms Youngson was a single mother with a young daughter and was on Centrelink benefits when she started her first renovation in Adelaide 10 years ago using equity from her house. "The key is to get in and out quickly. No more than four to six weeks from settlement," she said.
"Even in Adelaide, where the market is quieter than Sydney or Melbourne, there are microclimates in certain suburbs where flipping can be profitable."
However, Ms Barber warned first-time flippers to look after their earnings. "Don't rush into Tiffany's when you make your first $40,000."
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Loan curbs slow investor borrowing, Mortgage Choice says
Date
July 6, 2015
Clancy Yeates
Banking reporter
Tighter lending conditions for investor borrowers might be starting to bite. Photo: Andrew Meares
One of the country's biggest mortgage brokers, Mortgage Choice, says the clampdown on lending to landlords has dragged property investors' share of its loan approvals to a 20-month low.
In a sign banks' tighter credit standards are having some impact, Mortgage Choice says the proportion of its loan approvals going to property investors fell from 34 per cent in May to 30 per cent in June, the lowest share since late 2013.
"It's a 12 per cent reduction in investor loans in a very, very short period of time," chief executive John Flavell said.
While there have not been official figures yet confirming this trend, Mr Flavell said it was the first data pointing to a slowdown in investor lending triggered by banks' tougher credit policies.
All of the large banks unveiled measures to rein in investor lending in May, including cutting interest rate discounts. Mr Flavell said changes to credit policies were having the biggest impact.
In particular, he said some first-home buyers trying to enter the market as property investors were finding it harder to get credit from banks under the new lending criteria.
"The pricing is less impactful, but the policy pieces have just knocked them out left, right and centre," Mr Flavell said.
Changes introduced by banks in recent months include caps on loan-to-valuation ratios for investor borrowers and tougher rules for assessing borrowers' incomes and their sensitivity to higher interest rates.
These have been made in response to the Australian Prudential Regulation Authority demanding banks slow growth in the stock of all outstanding housing investor loans to less than 10 per cent a year, compared with the current pace of 10.4 per cent.
Mr Flavell said it was not clear it APRA's target would be met, but the lending policy changes hit hardest first-home buyers who were also investors, because they tended to have less equity and lower incomes than more-established property investors.
"It doesn't knock out the foreign investor. It doesn't knock out middle-aged, middle Australia with heaps of equity access and excess income and high tax. It knocks out the people who are trying to get in," he said.
The figures from Mortgage Choice are a tentative sign of slowing in lending to property investors, who have been driving the boom in house prices in Sydney and to a lesser extent Melbourne.
The Australian Bureau of Statistics will publish figures this week on loan approvals for May and economists are expecting them to reveal a slowdown in new lending. Bloomberg says the median market economist forecast is for a 3 per cent fall in the number of loans to owner-occupiers.
JPMorgan economist Ben Jarman said for banks to comply with APRA's 10 per cent-a-year speed limit for total housing investor credit growth the rate of new lending to investors would need to fall back "quite a lot".
This is because credit growth – APRA's target – is a function of both new lending and the repayment of debt. Much of the recent lending to investors has been in the form of interest-only loans, which tend to be paid off more slowly.
"To slow the overall rate of credit growth you should have to have a noticeable pullback in the flow of new lending," Mr Jarman said.
ANZ Bank economist David Cannington said investor credit growth appeared to be hitting a plateau near the 10 per cent-a-year cap imposed by APRA.
"Lending institutions have basically got the message that APRA are looking to target investment loan growth at 10 per cent and they are actively trying to make sure that they don't significantly breach that limit," he said.
The clampdown on investors comes as more first-home buyers are entering the property market as landlords, which can make property ownership more affordable because of tax breaks.
Mr Flavell said about a fifth of Mortgage Choice's investor clients were first-home buyers.
Amid soaring prices in Sydney and Melbourne a federal parliamentary inquiry is being held into home ownership.
But Mr Flavell said that at the same time as the inquiry was being held lending policy changes introduced in response to APRA's cap had made it harder for many first-home buyers who were also investors to enter the market.
He also highlighted the federal government's decision to abolish first-home saver accounts – a scheme that provided people saving for a deposit with tax breaks and co-contributions from government.
Chinese giant R&F Properties has local buyers in its sights
THE AUSTRALIAN JULY 09, 2015 12:00AM
Rosanne Barrett
Reporter
Brisbane
Chinese mega-developer R&F Properties wants to become a major player in Australian property, insisting it will target local buyers rather than international investors as it rolls out plans to develop luxury apartments and eventually diversifies into house-and-land packages.
The $13.5 billion Guangzhou-based, Hong Kong-listed developer has established a head office in Melbourne’s Rialto South Tower and plans to use its size and cost advantages to establish a presence in Australia and then recycle earnings back into more local projects.
In his first comments about the company’s Australian arm, managing director Tiger Huang said the company wanted to play a part in transforming cities — starting with Brisbane and Melbourne — to develop into more sustainable urban areas.
“We want to take vacant spaces and turn them into functional, liveable and superb looking spaces,” he said. “Our long-term plan is clear, to invest profits into onshore projects only. We aim to use all the resources at hand in focusing on developments exclusive in Australia.”
R&F made a dramatic entry into the Australian market last year when it bought two approved sites from Brisbane-based Metro Property Development for almost double what the local company had paid less than a year earlier.
This week it lodged plans for the South Brisbane former TAFE site, scaling back the Metro approval by 34 units, adding balconies to all apartments, boosting the proportion of three-bedroom offerings and increasing architectural features.
It is also understood to be in the final stages of negotiations to purchase a large riverfront site with the capacity for almost 1000 apartments for $82.5 million.
Internationally, the company has operations in more than 20 Chinese cities and Malaysia.
The Chinese developer said its point of difference in the market was its size and scale, as well as having the ability to bulk buy appliances for its projects.
Deputy general manager Vincent Chen noted the example of kitchen appliance brand Miele as a supplier. “We can act on our buying power to attain high quality materials at a lower cost, therefore using more capital in other areas to achieve high-spec designs with superb finishes, rather than medium-spec designs that fall short of the mark,” Mr Chen said.
He said the company would follow up its Brisbane project with other complexes in Melbourne, Sydney and other cities. “Other states can definitely expect us to enter their market soon,” he said.
R&F is seeking to build up a land bank of three to five years of “continual projects” and runs as a vertically integrated company “controlling every facet of its projects, increasing efficiency and reducing costs without compromising quality”.
Its first project will be 1 Cordelia Street, in South Brisbane, where the company will build 568 apartments across three towers. Two are 30 storeys; one is 11 storeys.
OPINION Jul 8 2015 at 6:58 PM Updated Jul 8 2015 at 8:28 PM
China's sharemarket turmoil spills into Australian real estate
Some iconic sites across WA are for sale as the state's credit rating and deficit drops Anthea Russo
by Robert Harley
The turmoil on the Chinese sharemarket raises concerns, challenges and opportunities, for Australian real estate.
At last count, China was the single-largest source of offshore real estate investment in the country, with $12.4 billion of Foreign Investment Review Board approvals in 2014-15.
In the context of a $250 billion-plus annual real estate turnover, the figure does not seem much. But by all accounts, it has kept rising in the past year, is very focused on particular geographies and sectors such as development sites and apartments in Sydney and Melbourne, and foreshadows further spending to come.
The turmoil raises questions about the Chinese developers who have made major investments in Australian sites; about the Chinese retail investors who appear so keen to buy new apartments off the plan; about the nascent institutional buying of commercial property; and, through the broader economy, about the impact for property as a whole.
"I ask my staff the same questions," says Australia's billionaire apartment developer, Meriton's Harry Triguboff.
"At this stage, we don't feel anything has changed. With the dollar coming down, they want our apartments even more."
The big question for Triguboff is whether the Chinese buyers will be able to settle when the time comes to pay the remaining 90 per cent on his apartments.
Another question is the value of apartment sites which have been pursued aggressively by Chinese developers.
So what is happening to site prices? "At this stage there is not much going on. The vendors are asking a lot and the purchasers are wary and the banks are wary," says Triguboff. "It is very early."
The managing director of CBRE's Residential Projects, David Milton, says the sharemarket turmoil will propel investors away from stocks to other asset classes, particularly real estate.
CLASSIC CYCLICAL VIEW
It is a classic cyclical view. The sharemarket surge and fall is followed by a cut in interest rates and property surges. For Chinese investment into Australia, such a move is reinforced by the falling dollar. Sadly, those cycles are always followed by a bust.
CBRE associate director Mark Wizel says developers are bringing forward projects because they don't know how long the market will last.
JLL's head of research in Australia, David Rees, also acknowledges that Chinese investors may abandon the sharemarket in the wake of the collapse and look elsewhere, like real estate.
But he is sanguine about short-term impacts. Yes, the Chinese sharemarket was clearly a bubble but "the evidence of these kind of things is that they don't have a lot of reverberations".
Dr Rees is more focused on the long term: "Chinese cross-border capital flow is still smaller than Japan. You could expect it to get bigger.
"But you should not see China as a wall of money. It is more nuanced than that. You will see different strategies coming out of China."
CBRE director, Rick Butler, takes a similar view to Chinese institutional investment. It's only just started.
"They will be, and are interested and the stock exchange is of no moment," he says.
"Seventeen life companies are now approved to buy offshore. In one month they will be MIT [Managed Investment Trust] compliant."
Standard and Poor's Ratings Services noted "early signs of stabilisation" for China's property developers. But it warned that conditions would have to improve further for developers to meet the larger refinancing of bonds with $US24 billion ($32.5 billion) to be refinanced in 2016-18.
Lenders and investors are cautious about the sector following the recent default of Kaisa Group Holdings, suggesting credit conditions for the offshore markets could quickly turn unfavourable.
Macquarie Wealth Management, in a note issued this week also pointed to way "better than expected" first-half sales confirmed a "bottoming out" in the market. In response to the question of funding, Macquarie noted that Chinese developers were turning to the local bond market because of the lifting of government restrictions and lower after-tax funding costs than offshore bonds.
Property boom: local house prices anything but ‘undervalued’
THE AUSTRALIAN JULY 11, 2015 12:00AM
Samantha Hutchinson
Property Writer
Experts have smashed claims that Australian house prices are undervalued, arguing home owners are tipping more of their income into repayments than ever before.
“It’s an academic exercise that’s yielded a pretty strange conclusion and it just doesn’t bear out what the market is telling us,” Urbis economist Nicki Hutley said.
“There’s a supply and demand imbalance, and if you look at the multiple for values to incomes, it’s hard to see how the market can sustain values moving any higher.”
Ms Hutley’s comments add to those from a wave of executives who have rejected claims by Reserve Bank of Australia senior researcher Peter Tulip that homes could be undervalued by as much as 30 per cent.
The economist on Thursday revealed early findings of an RBA discussion paper showed that home owners would likely pay 2.7 per cent of the home’s value a year to own the home, compared to the cost of renting the same home to be 3.9 per cent.
“The undervaluation is 30 per cent,” Dr Tulip told members at a conference in Brisbane. “Under our assumptions, owning a home is now more attractive, relative to renting, than it has been at any time in the past 30 years.”
The academic distanced himself from his employer in making the comments, which are in contrast to those of the bank’s governor, Glenn Stevens, who has called prices in some area “crazy”. National capital city house prices have risen 10.1 per cent in the past 12 months, led by gains in Sydney of 16.4 per cent and in Melbourne of 10.4 per cent.
The hike in prices has stoked debate on issues ranging from taxation, foreign investment and immigration policy to planning. It has also added an unprecedented layer of complexity to monetary policy, forcing regulators to grapple with the challenge of stimulating an ailing economy without injecting more steam into an overheated property market.
Economists argue there are other measures that show property is overvalued. “There are so many different ways of modelling it, but in the sense that the house price-to-income ratio has been circling around a steady mean (of 4.1) for the past decade, the market now looks like it’s picked up too much and it looks like it could be overvalued,” HSBC economist Paul Bloxham said.
The median multiple of house prices to household income in Australia is 6.4 times, according to the 2015 Demographic Housing Affordability Survey. This compares with 3.6 in the US and 4.7 in Britain. UBS economist George Tharenou agreed with Mr Bloxham. “Given household income growth is just 2.5 per cent year on year, the house price-to-income ratio is now lifted to a record, bubble-like 5.5 times ... this is similar to prior peaks in 2003, 2007 and 2010 that were followed by price falls.”
Offshore buyers are finding Australian property more expensive than they expected, says Sydney-based agent Monika Tu.
“Everyday I hear from my clients that ... Sydney is very expensive,” the agent said. “It could be a bargaining strategy to lower my prices, but they are surprised to hear the market price ... I don’t agree that it’s undervalued.”
Many of Ms Tu’s clients are looking for property in New York or London at the same time they consider Sydney. In this context, Sydney appears “quite reasonable”, she said.
In global rankings, Sydney and Melbourne house prices still trail international hubs including New York, London and Paris. Homes in Sydney average a sale price of $29,849 per square metre, according to property group Knight Frank. This is $31,341 cheaper than London, $28,427 cheaper than New York and $42,119 cheaper than homes in Monaco.
Banks’ growth cap bites into home loans
THE AUSTRALIAN JULY 11, 2015 12:00AM
Michael Bennet
Reporter
Sydney
Regulators’ divisive efforts to temper riskier lending in the property market are gaining traction, sparking the biggest monthly decline in finance approvals to buy established homes in 15 years.
While hitting banks’ future credit growth, a less frothy property market could prove a silver lining by providing room for the Reserve Bank to cut rates again — in turn allowing banks to “reprice” their mortgage and deposit books in their favour, analysts say.
It began in May, when Commonwealth Bank, Westpac and National Australia Bank held back the RBA’s full rate cut from mortgage-holders to prop up their margins. More recently, CBA and Westpac then axed promotional interest rates on deposit products they launched to soften the fallout from the hit to mortgage-holders.
Yesterday, official data showed that housing finance approvals to owner-occupiers fell 6.1 per cent month-on-month in May — four times worse than expected — as regulators’ so-called macro-prudential regulations started to bite.
The slump, led by a 9.1 per cent decline for established dwellings ex-refinancing — the biggest since 2000, according to Goldman Sachs — suggested the property market could lose steam as regulators broadened their crackdown.
It follows actions taken by banks in recent months to slow lending to property investors after the Australian Prudential Regulation Authority in December installed a 10 per cent growth cap, which several banks continue to breach.
The value of approvals to investors in May declined 3.6 per cent on the prior month, slowing the annual rate to 17.1 per cent, yesterday’s data showed. “A more significant slowing will be required in order to slow investor lending credit growth to sub the 10 per cent pace targeted by APRA in coming months,” Goldman economist Tim Toohey said.
Westpac and ANZ this week further tightened serviceability measures and policies, with the former slicing its maximum loan-to-value ratio for investment loans to 80 per cent, from 95 per cent.
For the year to May, NAB had the strongest investor growth at 13.9 per cent, followed by Westpac’s 10.9 per cent, ANZ’s 10.6 per cent and CBA’s 9.4 per cent, according to APRA data.
“While the restrictions may seem onerous, a slowing housing market would also help the banks, by enabling the RBA to cut rates, if required,” UBS analyst Jonathan Mott said.
“This would make net interest margin repricing more palatable. Given the existing levels of housing debt in Australia, margin is a far more important consideration than volume.”
While strong housing credit and low bad debts boosted the big four’s first-half cash profit to a combined $15.5 billion, average net interest margins slid to 2.04 per cent.
Also, earnings per share fell for the first time since 2009 and analysts are forecasting soft growth ahead, putting pressure on banks to reprice products amid looming capital headwinds from the Murray financial system inquiry and Basel IV global changes.
But the banks’ efforts to slow investor lending has drawn criticism for affecting parts of the property market apart from Sydney, which Treasury Secretary John Fraser recently deemed was in a bubble.
“We don’t have a property price problem in Australia — what we have is a very strong market in Sydney,” Sam White, the chairman of Loan Market, said after the RBA this week kept the cash rate at a record low 2 per cent. “Large parts of Australia, particularly in Western Australia and South Australia, need more investors.
“The APRA move doesn’t help those markets — a better solution would have been to geographically target the intervention.”
Such measures have been adopted in New Zealand, where regulators have unveiled macroprudential rules such as higher risk weights — or more capital — for investor lending and forcing investors in Auckland to have a 30 per cent deposit.
JPMorgan economist Ben Jarman said yesterday’s slump in owner-occupier flows suggested APRA had stepped up its surveillance more broadly rather than just on investor lending.
“We should be set for more moderate growth rates on housing credit from here, which would provide the RBA with a little more flexibility to cut rates,” he said.
Teachers, cabbies drive investment
Duncan Hughes
408 words
6 Jul 2015
The Australian Financial Review
AFNR
English
Teachers and taxi drivers are the new generation of property investors, using generous tax concessions to buy rental houses and apartments, according to a Property Council of Australia analysis of borrowing.
Nearly $7 in every $10 claimed for negative gearing is by lower- and middle-income wage earners, typically earning $80,000 or less, for losses on their investment properties, it reveals.
Of that borrowing, teachers comprised the largest component, followed by mid-ranking public servants. Traditional blue-collar workers such as taxi drivers also featured prominently in the list.
The Property Council, which represents the nation's property industry, heralds the figures as evidence that tax concessions are helping to build the nation's housing stock and "ordinary Australians" to get into the housing sector.
"Benefits of negative gearing are flowing predominantly to every Australian looking to build wealth for their future," said Nick Proud, executive director of the council.
But critics fear a combination of record-low interest rates, big price jumps - particularly in Melbourne and Sydney - and tax concessions are helping to push up supply, prices and debt to unsustainable levels.
Negative gearing allows tax payers to subtract the losses they make on investments from their taxable income. It is attractive because taxpayers can deduct the full amount of interest payments and only pay tax on half of any capital gains.
Investors are also using limited recourse lending to invest in property through self-managed super funds, which account for about one-third of the nation's $1.8 trillion of super savings.
According to the analysis, about 2 million Australians declare an interest in an investment property.
Of these, about 1.3 million Australian taxpayers own a negatively geared property and claimed more than $14 billion in net losses.
Nearly 840,000 of these investors had a taxable income of about $80,000 or lower.
The numbers also reveal those aged 29 and under "overwhelmingly" rely on negative gearing to get into the market, which means many are living with their parents longer, and that nine in 10 of all buyers have mostly one or two properties.
For the first time since records began, more first-time buyers are expected to be investors rather than owner-occupiers by the end of this year, which reflects a major change in the nation's property culture from owner-occupiers to landlords, according to separate research by Digital Finance Analytics.
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