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Chinese investors seek shelter in overseas property markets

ROB TAYLOR, WEI GU
THE WALL STREET JOURNAL
AUGUST 29, 2015 12:00AM

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Chinese commercial property investment Source: TheAustralian

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[b]Signs are emerging Chinese property investments offshore will maintain their torrid pace despite the recent market turmoil, as wealthy individuals and well-heeled companies seek to shelter their money abroad.[/b]
In Australia, where China this year surpassed the US as the biggest source of foreign property investment, officials are worried wealthy Chinese investors will pour more money into an already overheated market.
Chinese investors are “looking for safe, stable, secure investments”, Treasurer Joe Hockey told The Wall Street Journal this week. “Australian real estate is very attractive for them in that regard,” he said, singling out “skittish Chinese investors”.
China’s currency devaluation this month sparked a global sell-off of stocks amid concern over the nation’s economic health. After dropping by nearly a quarter, the Shanghai Composite Index recovered sharply on Thursday. Any rise in Chinese investment would come despite the yuan’s diminished buying power abroad.
“If wealthy Chinese feel that the recent devaluation is the beginning of a much longer and deeper depreciation, they may be motivated to move liquid assets overseas before that happens,” said Andrew Taylor, co-chief executive of Juwai.com, a Chinese website that helps people search for overseas homes.
In the US, where Chinese buyers this year surpassed Canadians to become the biggest foreign property investors, at least one broker describes a sudden surge in Chinese interest in buying high-end residential properties in New York. “I have never seen demand be so strong for top-tier properties in Manhattan,” said Carrie Chiang, from Corcoran, a US real estate firm. “Yuan devaluation will make Chinese clients think they should put some tangible asset in New York, because that’s stable.”
During the first half of this year, Chinese investment in overseas commercial properties, a proxy for outbound residential investment, totalled $US6.5 billion ($9bn), well on track to surpass last year’s total of $US10.5bn, according to CBRE.
Chinese investors are drawn to the US for its stability, with low interest rates and moderate economic growth during a time of global uncertainty, according to Cushman Wakefield, a property consultancy. Australia and Britain were the second and third most popular destinations for Chinese property investment.
Chinese investment in Asia plummeted because buyers were shunning Hong Kong and Singapore, where prices had risen significantly, in favour of the US, said Michael Cole, an analyst at Mingtiandi.com, a website that tracks Chinese real estate activities.
Chinese foreign property investments may get a further boost from Beijing’s plan to loosen its capital controls with a new trial program in six cities allowing wealthy individuals to invest directly in overseas assets.
A fresh surge into Australian property worries policy-makers, who believe prices in Sydney and Melbourne have in the past two years risen to levels that are pushing many middle-class families out of the market.
This year, Australia’s foreign investment review body said China had overtaken the US as the country’s biggest source of investment from overseas, with a total of $US27.6bn last year. Residential and commercial real estate accounted for almost half that. House prices in Sydney are 48 per cent higher than they were at the start of the current growth cycle, in May 2012, and 32 per cent higher in Melbourne, according to data from CoreLogic RP Data.
With soaring prices putting home ownership out of reach of many Australians, the government is under pressure to make housing more affordable. The bank regulator has adopted measures to curb bank lending for the purchase of investment property.
Mr Hockey said officials were monitoring overseas interest since the turmoil of recent days on global equity markets.
The government isn’t concerned with overseas purchases of newly built property. But officials believe many people, including from China and Southeast Asia, are abusing the system through loopholes to illegitimately buy existing homes and have recently began cracking down on them.
“Provided (the Chinese investment) goes into new real estate, creating the jobs in the construction industry that we want, that’s welcome,” Mr Hockey said.
The Wall Street Journal

Chinese property demand showing no signs of slowdown

THE AUSTRALIAN
AUGUST 29, 2015 12:00AM
Turi Condon
[Image: turi_condon.png]
Property Editor
Sydney

[img=650x0]http://cdn.newsapi.com.au/image/v1/381e5efb6939df5697cc4b349db9e99d?width=650[/img]

Ray White chairman Brian White.

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The appetite of Chinese buyers for Australian property has been greatly underestimated with demand stronger and deeper than ever before, according to the Brian White, the chairman of real estate agency Ray White.
The gyrations in China’s sharemarket had made no difference to developers’ and investors’ intentions either within China, or overseas, said Mr White, who oversees the company’s 1000 office-strong network. “We had a team in China last week, including Dan (Mr White’s son and head of Ray White’s commercial business),” Mr White told The Weekend Australian. “Nowhere did he see a lack of interest. The strength of demand is astonishing. ”
Steve McCann, the chief executive of Lend Lease, Australia’s largest apartment developer that this week reported a $619 million profit, said the group had sale contracts for $4.7 billion worth of new apartment projects around the world, with about 35-40 per cent of buyers — whether for projects in Australia, Britain or the US — coming from overseas. Of the pre-sales, $3.4bn was Australian apartments, with most of the offshore buyers coming from Asia including China. “We have really good visibility and based on the prices and demand for apartments globally, there’s a very deep pool from Asia. I don’t know what the catalyst will be to slow that down … but we’re not seeing any signs of that happening yet,” Mr McCann said.
‘‘Our most recent launch was in Darling Harbour and we sold out about $600m worth of apartments in five hours. That’s a record for Australia,” he said of the May sales launch of the Darling Square project to be built on the site of the Sydney Entertainment Centre.
Mr McCann said he did not see a housing bubble in the overall residential market, but acknowledged that booms did not last forever. “I can’t imagine the price increases being maintainable, so I would imagine in the next 12 to 18 months price growth will probably stop,” he said.
Colliers International Victorian managing director, residential, Tim Storey dismissed fears of an oversupply of Melbourne apartments after recently launching a 1000-unit project — Swanston Central — that he expects to sell out in a “matter of months”.
His team sold 5000 Melbourne apartments last year, but will sell fewer this year as not as many new unit towers have been launched. If complete projects were marketed offshore and “we opened up to Chinese demand, it would be unbelievable” Mr Storey said.
Sydney’s apartment market will be tested today, with developer Crown Group launching its 326-unit Infinity project at Green Square in South Sydney.

New-home ballots offering a chance just to bid for property

THE AUSTRALIAN
AUGUST 29, 2015 12:00AM

Samantha Hutchinson
[Image: sam_hutchinson.png]
Property Writer

[Image: 579082-f7973ebc-4d4b-11e5-bcd5-11e18b06f3ff.jpg]
Mirvac’s John Carfi picks out prospective buyers’ ballot numbers yesterday. Picture: Quentin JonesSource: Supplied
[b]Property companies are turning to raffle-style ballot systems in a bid to whittle down the soaring number of hopefuls vying to buy homes in new masterplanned developments.[/b]
Mirvac drew 150 names out of a barrel yesterday, in front of a crowd of about 100 people, for a chance to bid for a home in the first release of 44 homes at the Brighton Lakes development at Moorebank in Sydney’s west.
More than 500 people registered and paid a deposit for the ballot, the first sales release almost 12 months after the group first started advertising upcoming sales at the site.
“Our greatest challenge has been dealing with the huge volume of people who want to buy,” Mirvac residential head John Carfi said, of the ballot he drew himself. “We’re seeing demand in pockets come on in such strength that our normal sales process with our VIP database could leave customers dissatisfied ... we figured that, for the volume, the fairest and most transparent system we could do would be the ballot.”
The ballot comes as detached homes emerge as the powerhouse within new home construction, after 18 months dominated by apartment projects.
Detached home approvals grew by 4.3 per cent in seasonally adjusted terms last month to 9661 houses, according to ABS calculations, while apartment and townhouse approvals plummeted 8.2 per cent to 17,868 homes. Detached home approvals have maintained an average of 9650 per month since January last year, representing its highest point in a decade.
Developers claim that they are releasing homes to market as soon as they receive development approval, even as new planning rules mean they can build 22 homes per hectare, up from previous levels of about 15. In Mirvac’s case, Brighton Lakes received approval less than two weeks ago.
“This is the strongest demand I have seen in my working career,” Mr Carfi said.
The release comes as several large-scale communities in Sydney’s west, such as Australand and Urban Growth’s The Ponds project, approach completion, while a swag of new developments by the likes of Stockland and Australand at Willowdale and Edmondson Park and others are just getting started.
Most are recording pre-sales on release dates of more than 90 per cent.
Rival developer Stockland, which is developing large-scale sites at Willowdale near Leppington and Elara in Marsden Park, deliberately avoids the ballot system in favour of an automated process that gives preference to potential buyers the longer they have been on the group’s waitlist for properties.
“We don’t do ballots, we don’t force buyers to camp out either,” a spokesperson said.
“It's a bit of theatre, but it (can be) inconvenient for customers ... we’ve got the technology and we’re happy to use it.”

Triguboff raises alarm over apartment boom

BUSINESS SPECTATOR
AUGUST 31, 2015 8:47AM

Robert Gottliebsen
[Image: robert_gottliebsen.png]
Business Spectator Columnist
Melbourne

[b]Australia’s largest apartment developer and owner, Meriton’s Harry Triguboff, has called on me to alert Australia that next year we could face a real estate crisis similar to the 2007 US disaster that triggered the global financial crisis.[/b]
Triguboff warns that if the triggers that have been inserted in our system are pulled, it will cause a significant fall in Australian dwelling prices and substantial bank losses, as occurred in the US but, of course, we will not trigger a global financial crisis.
I must confess I had not appreciated neither the dangers the nation now faces nor the controversial lending practices of the banks that now endanger our prosperity and the level of our share market.
Let’s start with the fact that we are experiencing the biggest apartment building boom in our history. Just how many apartments are being built at the moment is impossible to calculate but let’s say 20,000 are being built in Sydney, a similar amount in Melbourne and 20,000 in the rest of Australia — a total of 60,000. The real figure could easily be 10,000 higher or lower.
The major assumption that both Asian and Australian buyers make when they invest is that the migrant-driven, rising Australian population will continue. Any significant slowing of migration to Australia is likely to create surpluses given the huge number of apartments being built. If the population continues to rise, we will need a lot of apartments.
Very few owner-occupiers are buying these apartments. The two main sources of capital are Chinese and other Asian residents who are investing in Australia and private Australian investors.
The Australian investors have paid a 10 per cent deposit and have committed to pay the balance when the apartment is completed. The Chinese and Asian investors have undertaken similar arrangements.
We have all long recognised that if there is a major setback in China or the region, these overseas buyers might walk away and forfeit their 10 per cent deposits. As a result, local banks have been wary of funding apartment developments with high overseas investor content. Overseas banks have had no such reservations.
That risk is not new and has been accepted by the apartment markets for a long time but, naturally, as the level of new apartment building balloons, the risk increases in size. I hasten to add that the Chinese and Asian Australian apartment buyers show no sign of slowing their buying of Australian apartments and they have been meticulous in honouring all contracts. Harry Triguboff was not alerting me to the above dangers — they’re part of the business. The Triguboff alert comes from a far deeper danger.
Apartment developers around the land, including Triguboff’s Meriton, borrow from banks on the basis of the 10 per cent deposits and the “firm commitment” from investors to pay the balance when the apartments are completed.
But these “firm commitments” from investors are based on commitments banks have made to those investors to fund the purchases. The trouble is that these “commitments” from banks to investors are not commitments at all. The vast majority are at best notice of intention to lend but their contracts have multiple escape clauses and loopholes that mean that the bank support of investor commitments has no legal value.
Our banks are lending huge sums to developers who can only repay the banks if other banks fund their investors but there is no firm bank commitment to fund those investors.
Harry Triguboff spells out this potentially toxic situation in the backing the banks have contracted to give investors:
“The banks can vary the amount of deposit the purchaser has to find; the bank can vary the valuation; the bank can suddenly refuse to abide by the non-binding promise to finance an investor,” Triguboff says.
“I hope that the banks will only use these measures as a last resort, and not often.
“If the banks become unreliable lenders, apartment prices will drop dramatically.”
You could not have a stronger warning from Australia’s largest developer and owner.
The risks of banks walking away or exploiting one of the loopholes is increased by the pressure the regulators are putting on the banks to lower their investor loans and the nervousness analysts are showing toward the ballooning dependence of Australian banks on housing.
And if migration slowed and/or the Chinese became unreliable, then the dangers of Australian banks exercising their loophole escape clauses would be multiplied many times. Once one bank gets the jitters and starts exercising its rights not to fund investors, then the dangers of the others following is multiplied.
In simple terms, Australian banks are playing a very dangerous game by funding developments on the security of loophole ridden loans to investors with clear parallels to the loans US banks made to people who could not pay.
Will the Australian banks exercise their right to escape if they fear that making the loans to investors could create losses? To be fair to the banks, to date they have not exercised their rights except in exceptional circumstances.
Harry Triguboff reminds the banks that they have a huge commitment to the total dwelling market and warns the banks that pulling the plug will have wider effects:
“The value of residential properties that the banks financed in the past, which is where most of their money has been invested, will drop even more rapidly,” Triguboff warns.
That flow-on effect on existing apartment values will be multiplied because most of the investment is concentrated on new apartments — that’s where people like to invest their money. If second-hand apartments fall dramatically in value because of the overhang of new apartments where investors have not completed the contract because banks have withdrawn funding, then fasten your safety belts for a nasty situation.
Not only are the bank losses set to be huge but new apartment development will be slashed and its new apartments that are keeping the economies of Sydney and Melbourne (particularly Melbourne) going.
So, when is crunch time?
It’s not 2015. Triguboff says the big decisions will be made by the banks in the second half of calendar 2016.
That, therefore, becomes a danger time for bank shares and the stockmarket.
Assuming there is no early poll, that’s when the next federal election will be held. In some ways the banks are trapped.

New home sales pass peak, says HIA

BUSINESS SPECTATOR
AUGUST 31, 2015 11:18AM

Michael Roddan
[Image: michael_roddan.png]
Reporter

[Image: 936782-21c2c05e-4f80-11e5-bcd5-11e18b06f3ff.jpg]
The Housing Industry Association expects another “healthy” year for new home construction.Source: News Limited
[b]Housing Industry Association chief economist Harley Dale says there is “little prospect” for further growth in new home construction over the coming financial year, with the sector having passed its cyclical peak.[/b]
According to the HIA’s new home sales report, the number of new homes sales declined modestly in July, dropping 0.4 per cent over the month.
“It appears that the cyclical peak for total new home sales occurred in April, but the subsequent downward trend is very mild,” Dr Dale said.
“The annual peak for detached house sales has passed,” he said, with sales increasing only 0.7 per cent in the month.
Over the three months to July this year detached house sales fell by 2.8 per cent to be 3.4 per cent lower when compared to the corresponding period in 2014.
Meanwhile, apartment sales fell 4.2 per cent in July following a 2.9 per cent dip in June.
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MORETriguboff raises alarm over boom

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“Over the three months to July this year multi-unit sales increased by 8.3 per cent, but it was the strength of the May result that drove the quarterly outcome,” Dr Dale said.
But Dr Dale was upbeat on the outlook for the industry over the year.
“Following three consecutive years of strong growth which has propped up the domestic economy considerably, both HIA new home sales and ABS building approvals signal another healthy year for new home construction,” he said.
Meanwhile the pace of growth in housing prices across the mainland state capitals has slowed, according to preliminary figures from CoreLogic RP Data.
The analytics firm, which will release detailed figures tomorrow, says the numbers so far point to a 0.5 per cent gain in August, after rises of 2.8 per cent in July and 2.1 per cent in June.
After prices rose 1.1 per cent in August last year, the latest monthly rise suggests annual growth slowed to about 10.5 per cent in the year to August, from 11.1 per cent over the year to July. CoreLogic RP Data head of research Tim Lawless said the monthly growth slowdown was most evident in Melbourne, where prices were relatively flat, up only about 0.1 per cent on average in the first four weeks of August compared with the July average.
Sydney prices were up about one per cent.
Business Spectator, AAP

Winter chill no match for hot housing as prices rise again

THE AUSTRALIAN
SEPTEMBER 02, 2015 12:00AM

Samantha Hutchinson
[Image: sam_hutchinson.png]
Property Writer

Turi Condon
[Image: turi_condon.png]
Property Editor
Sydney

[Image: 472060-1e12876a-50ab-11e5-8ffe-a0d4079a7abb.jpg]
Change in dwelling values. Source: TheAustralian
[b]House prices nationally have defied the traditional winter lull to rise in August, bringing total capital gains in three years close to 30 per cent.[/b]
The Reserve Bank of Australia’s decision to leave interest rates on hold at a record low of 2 per cent means house prices will continue their unprecedented rise into spring, even as economists question the sustainability of the increases.
“In the past when you’ve had a period of low interest rates, house prices just continue to rise,” UBS economist George Tharenou told The Australian. “And what makes me nervous is that house price growth of 10 per cent just isn’t sustainable, and in particular they’re not sustainable when you’ve got weak income growth of about 2.5 per cent. It’s not a sound situation, and it’s been funded by increasing debt.”
The national rate of house price growth eased slightly last month to increase by 0.3 per cent, but still turned in a robust 5.3 per cent for the three months to the end of August, according to researcher CoreLogic RP Data.
Sydney again led the way with dwelling prices gaining 1.1 per cent for the month and 7.4 per cent for the quarter, taking the median price to $773,000.
The latest lift brings the city’s capital gains to more than 76 per cent since 2009.
Prices in Brisbane were flat for the month and 2.2 per cent higher for the three months.
Melbourne’s price growth was also flat for the month, but increased 8 per cent for the quarter, CoreLogic RP Data found.
However, Darwin prices fell 3.2 per cent for the quarter, while Perth’s values fell 1.5 per cent.
Economists agree prices will track higher during the spring selling season, with listing numbers already showing signs of rising before the traditional peak.
However, they believe that house price growth is likely to moderate as new supply hits the market and rental vacancies increase.
“You’ve got a record amount of supply set to come on during the next 18 months and there will be a degree of indigestion,” CommSec economist Craig James said, referring to a softening of demand and a potential lift in rental vacancies. “Supply will determine price.”
However, a swag of property executives disagree, arguing that new housing supply has peaked and more needs to be done to stoke activity in the industry. “Although dwelling approvals were slightly up in July ... we have seen the peak and the general trend from here is downwards,” BIS Shrapnel director Kim Hawtrey said.
“With no further movement in interest rates anticipated and the latest crackdown by (the Australian Prudential Regulation Authority) on investors now being passed on by banks, the level of optimism in the market seems to have peaked.”
Mr James said buyers were likely to bow out of the market due to price gains before APRA was forced to jump in again.
“You just can’t sustain house price growth above 6 or 7 per cent plus, and eventually supply and demand will correct,” Mr James said.

Sep 3 2015 at 1:58 PM
Updated Sep 3 2015 at 5:03 PM

Lower Australia dollar to inflate Sydney, Melbourne property prices

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[img=620x0]http://www.afr.com/content/dam/images/g/j/a/k/2/1/image.related.afrArticleLead.620x350.gje5ua.png/1441263815223.jpg[/img]Crowds line up in Sydney to buy Crown Group's Infinity apartments last weekend. Simon Alekna
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by Su-Lin Tan
The lower Australian dollar makes property cheaper for foreign buyers and could increase the bubble prices being paid for apartments in areas of Sydney and Melbourne.
The dollar sank below US70¢ on Wednesday, for the first time since April 2009, and Deutsche Bank chief economistAdam Boyton predicts the dollar will keep falling to US60¢ by the end of 2016, and even past that into the US50¢ range.

"A lower Australian dollar would lower the cost for overseas investors to purchase new properties in Sydney which would put upward pressure on the price of new properties," says valuer Herron Todd White.
Its latest red-flag report warned some apartment buyers in Sydney and Melbourne were paying too much for properties in competition with foreign buyers, leaving owners and lenders exposed if the market suddenly turned.
The report says "two-tier" markets are starting to form in capital cities where developers of units are heavily dependent on foreign and interstate investors rather than local demand.
[img=620x0]http://www.afr.com/content/dam/images/1/3/5/m/w/n/image.imgtype.afrArticleInline.620x0.png/1441256569772.jpg[/img]Parramatta's Auto Alley development: "Record prices are being sold off the plan - $1.8 million plus for penthouse levels - that are not supported in the established market." Supplied.
The valuer said unit developments in Sydney such as Zetland, Waterloo, Rosebery, Mascot, Botany, Hurstville and Wolli Creek have been heavily marketed to overseas investors, particularly those from Asia who are sold units at higher prices.
In a rising market, the value of the units at time of settlement  may surpass the price paid. .But should the market peak or start to decline, then the value of these properties could dip below their purchase price.
MELBOURNE ALSO TWO-TIER
Herron Todd White said Melbourne's inner-city apartment market is two-tiered with foreign off-the-plan prices exceeding local transactions by 10 per cent to 15 per cent in some projects. If overseas demand softens then developers will be more reliant on domestic buyers who are not prepared to pay higher prices.

Certain suburbs, such as Balwyn North and Waverley, are popular with local and foreign buyers because of their schools and have experienced "dramatic price growth beyond their neighbouring precincts".
"Non-local investors, who include foreign investors and interstate investors, are often not close enough to the market and are less informed. They could be happy to pay more than local buyers but it would be an issue if they are financed by an Australian bank," Herron Todd White chief executive Brendon Hulcombe said.
"If an investor who paid too much needs to exit the market quickly, or their bank seeks to sell the property in a distressed loan situation, there is the propensity for losses to be realised which could end in tears for the owner, and their lender."
"Ill-informed purchasers paying over the odds of course, also plays with the underlying property market dynamics that drive the value of individual units in a unit block. If there are sales driven from interstate or international investors at a higher price, certainly it can have an impact on the value of the local market."

PARRAMATTA FEARS
While Sydney and Melbourne recorded a slower growth in prices in August, according to Corelogic RP Data's latest housing statistics,  Sydney and Melbourne dwelling prices are still at record highs.
Sydney property prices have risen nearly 20 per cent in the past 12 months and Melbourne about 12 per cent. Overall foreign investment makes up 2 per cent of Sydney's residential market, but certain areas have a higher concentration of foreign interests.
"I think sometimes as a country we talk about international purchasers driving the property market like they make up 20 per cent or so, and clearly that is not the case; they are a much, much smaller percentage of the overall market.

"However, in some certain geographic pockets there certainly are higher concentrations of international buyers, which might be impacted by a falling Australian dollar." Mr Hulcombe said.
Elsewhere in Sydney, Herron Todd White expressed concerns for Parramatta, earmarked for growth as Sydney's second CBD.
"The second largest commercial centre is being targeted for new unit developments with the original Auto Alley car sales strip being rezoned for high-rise unit developments over the next three to five years.
"Record prices are being sold off the plan – $1.8 million plus for penthouse levels – that are not supported in the established market," Mr Hulcombe said.
Developer Dyldam closed the deal on the Auto Alley site on Wednesday.
BRISBANE OVERSUPPLY
Brisbane is not free from potential problems either, where the main issue is the oversupply of residential apartments in the last two years.
Herron Todd White's research show there are at least three to four years of supply in the market, and seven to eight years proposed for development.
"Many units are being sold with 6 per cent rental guarantees for 12 to 24 months that has the potential to impact on the rentals. Hamilton, Milton and Fortitude Valley, in particular, have seen a substantial increase in supply over the past two years," Mr Hulcombe said.
"It is only once many of the buildings in the pre-sale phase reach completion, will the true impact of this mooted supply be known. However, there are already early signs of increasing vacancy levels and downward rental pressure in some secondary buildings."
Other concerns for Brisbane include house and land packages and townhouse projects in Brisbane which are heavily dependent on interstate buyers, such as the Ipswich area, the Moreton Regional Council and Logan City, with many packages sold at price points well above that supported by the local market.

Property loans: ANZ says rate hike hasn’t slowed demand

THE AUSTRALIAN
SEPTEMBER 07, 2015 12:00AM

Michael Bennet
[Image: michael_bennett.png]
Reporter
Sydney

[Image: 293764-4e715a1a-5454-11e5-9108-e3723a561ad5.jpg]
ANZ Bank has revealed that hiking the cost of loans for property investors is yet to notably slow demand. Picture: Bloomberg Source: News Limited
[b]ANZ Bank has revealed that hiking the cost of loans for property investors is yet to notably slow demand, giving the regulator food for thought as it mulls further restrictions to head off growing risks in the housing market.[/b]
On August 10, ANZ increased borrowing rates for landlords by 27 basis points but not for customers that live in their home, bringing in differentiated pricing for investors and owner-occupiers for the first time since the 1990s.
ANZ’s rivals have also increased investor loans by 20 to 29 basis points to meet the regulator’s 10 per cent growth cap on lending to landlords, after previous efforts of cutting discounts and tightening lending criteria failed to dissuade customers.
“Even post the pricing changes ... we’re seeing a pretty consistent flow ... so I don’t think that there’s been — in the short term — a substantial impact to demand,” Matt Boss, ANZ’s managing director, products and marketing, told The Australian.
The comments suggest that although data is showing investor lending is finally slowing down, demand remains strong and slightly more expensive loans may not be the panacea the banks were hoping for.
“There appear to be mixed signals,” Citi analyst Craig Williams said last week amid heightened scrutiny of investor loan growth, which he concluded would take “some time” to slow down.
“With investor lending remaining buoyant and the international experience demonstrating mixed results, further action by the Australian Prudential Regulation Authority (and patience) is likely to be required.”
Last month, APRA chairman Wayne Byres said while it was too early to assess whether further action was needed, the regulator remained “open to taking additional steps”, especially in hot markets such as Sydney and Melbourne.
He also conceded the banks’ repricing of investor loans might have “limited impact” because all major lenders have jacked up rates. The rate rises have simply clawed back the Reserve Bank’s rate cut in May to a record low 2 per cent.
Mr Williams said lending rates for investors and owner occupiers could differ by between 50 to 100 basis points over time, which was common in many countries.
According to APRA’s most recent data for July, overall investor housing growth slowed to 6 per cent annualised, well below the regulator’s threshold of 10 per cent. ANZ grew 7 per cent annualised, above Commonwealth Bank’s 6.7 per cent, Westpac’s 4.2 per cent and National Australia Bank’s 3.1 per cent.
But for the year to July 31, all the major banks continued to breach the 10 per cent cap, led by NAB. Also, the monthly figures are “too noisy” at the moment because of loan reclassifications by several banks, analysts say. Mr Boss said there would have also been $3 billion to $5bn of “switching” to owner-occupied loans last month across the big four, as customers that are no longer renting properties switch out of more expensive investor loans.
“In the next few months, measuring system growth rates for owner-occupied and investor segments will be near impossible to do,” he said. “(But) what I expect you’ll see in August is a massive slowdown (in investor) from ourselves, Westpac and CBA.”
ANZ again led overall housing growth in July, led by strong growth in owner-occupier lending. It comes after ANZ in May passed on the RBA’s full rate cut to borrowers, in contrast to its major back rivals which held some back to boost margins.
Mr Boss said ANZ had no regrets in passing on the cut in full, which ended NAB’s long-held reign as having the cheapest advertised standard variable rate.
“We’re happy with where we are and the strategy we took,” he said.
“We happen to be a price leader now ... but ANZ does not have a strategy now to be the price leader in the market ... you’re not going to see a ‘break up’ campaign or anything like that by ANZ anytime soon.”
Mr Boss said strong housing growth was being driven by customers refinancing with ANZ, as it continued to win business from competitors and lift investment in NSW, where it had been underexposed.

Meriton chief Harry Triguboff: dollar’s fall no saviour

THE AUSTRALIAN
SEPTEMBER 10, 2015 12:00AM

Turi Condon
[Image: turi_condon.png]
Property Editor
Sydney

Adam Creighton
[Image: adam_creighton.png]
Economics Correspondent
Sydney

[Image: 154424-1a196538-56d3-11e5-83fc-3eca1aa25b46.jpg]
Meriton founder and owner Harry Triguboff. Picture: Amos Aikman Source: News Corp Australia

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[b]Foreigners with investments in Australia have been burnt by the steep fall in the dollar and will be discouraged from investing again, according to Meriton Group founder Harry Triguboff.[/b]
Mr Triguboff, whose apartment building and tourism-dependent serviced apartment business benefits from the lower dollar, argues that the steep fall in the currency has not saved the mining industry and will damage Australia’s reputation with existing offshore investors.
“We tried to save the iron ore industry and didn’t save it. If you were an investor who had already bought, you would not buy again,” the Sydney-based billionaire told The Australian.
The property magnate’s remarks are in contrast to Reserve Bank deputy governor Philip Lowe’s upbeat comments about the Australian and Chinese economies in Melbourne yesterday.
“The exchange rate has now adjusted considerably and this adjustment has continued over recent weeks,” Dr Lowe said.
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MOREDollar drops toward US70c

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“Just as the appreciation helped stabilise the economy in the upswing of the boom in commodity prices and mining investment, the depreciation is helping in the downswing.”
Australia’s currency has lost a third of its value against the US dollar since hitting a record $US1.10 in July 2011.
Concern about recession in Australia following a sharp fall in GDP growth was misplaced, Dr Lowe argued. “Looking through this volatility, the data for the June quarter suggest that the economy is continuing to grow at a similar rate to that of the past few years,” he said.
Dr Lowe also argued that China remained a source of “tremendous opportunity” for Australia, and the world’s second-largest economy would probably continue to grow at a rate of between 6 per cent and 7 per cent.
He said the dramatic bursting of the bubble in the Chinese stockmarket — which has lost about 40 per cent of its value since June — would have far less actual impact than recent commentary might suggest. “While this attracted much attention, these movements in the Chinese equity market are likely to have only limited implications for the overall Chinese economy,” he said.
“One area that has looked a little more positive of late is the (Chinese) residential property market. In some of the larger cities, property prices have been increasing again, although construction activity has yet to pick up noticeably.”
Mr Triguboff argued that an Australian dollar at US80c would strike the right economic balance.
However, offshore real estate investors would have made up ground on rising residential and commercial property prices with housing prices up 10 per cent nationally in the past year, spurred on by Sydney and Melbourne gains of 17.6 per cent and 10.6 per cent, respectively.
Meriton would build about 3000 apartments in the next year with substantial sales to Chinese and Asian buyers.
Mr Triguboff also owns 3200 serviced apartments in 13 buildings in Sydney, Brisbane and the Gold Coast, with another 1400 serviced apartments planned or under construction. He also told The Australian of plans to market entire apartment blocks of about 300 units each to global investors to accelerate his development pipeline.
When asked if a higher dollar would dampen offshore sales and stays at his serviced apartments, Mr Triguboff said it would have neglible impact on his business. Chinese investment in residential property would remain strong as safehaven destinations were sought, while inbound tourism at a currency rate of US80c would be unimpeded, he said. “The tourists will come anyway.”
The latest Foreign Investment Review Board annual report showed that the total value of investment proposals in 2013-14 reached $167.4 billion, a 23.4 per cent increase, with China vaulting past the US as Australia’s biggest source of foreign capital based on FIRB data. Foreign investment in commercial and residential real estate doubled from $37.5bn to $74.6bn.
Mr Triguboff said the falling dollar bred an air of instability. “Every time the dollar drops, on a trade-weighted index basis, I lose, everybody does,” he said.
A stable dollar would lead to a better outcome for the building sector, said Mr Triguboff, arguing that construction, tourism and the property sector provided more jobs than mining. However, he warned of potential overbuilding.
“Unless we are prepared to have more migrants, we will have an (apartment) oversupply in Sydney, Melbourne and Brisbane,” Mr Triguboff said.
Dr Lowe said the combination of highly accommodative monetary policy, sluggish wage growth and the weaker currency would in any case help insulate Australia from any weakening of China’s economy, but warned against relying on them in the longer term.

Additional reporting: Richard Gluyas

Rental growth in Australia’s capitals at record low

THE AUSTRALIAN
SEPTEMBER 10, 2015 1:31PM

Kylar Loussikian
[Image: kylar_loussikian.png]
Journalist
Sydney

[b]Growth in rents across Australia’s capitals has hit a record low, squeezing property investors who are already contending with decreasing returns and rising borrowing costs.[/b]
Real housing rents fell 0.4 per cent for August across Australia’s capitals, according to CoreLogic RP Data, bringing annual growth in rents to just 0.7 per cent for the 12 months to the beginning of September.
The slow growth in rents comes after all of Australia’s major banks began tightening lending to real estate investors. The latest investment figures, released by the Australian Bureau of Statistics yesterday, show a 0.5 per cent monthly gain to $13.59 billion in July, just before banks began introducing higher rates for investors.
The 0.7 per cent rise in rental rates over the past year is the slowest rate of rental growth on record, based on data which goes back as far as December 1995, according to CoreLogic analyst Cameron Kusher.
“The reasons behind this lacklustre result for the rental market can be attributed to the extent of the current construction boom across the capital cities and slowing population growth,” he said.
“Added to this is the surge in investor participation in the housing market, which is contributing to weaker rental growth by adding to the rental stock.”
Sydney rents remained unchanged for the month, with year on year growth at 2.3 per cent. Melbourne recorded a 0.3 per cent fall and Brisbane recorded a 0.4 per cent fall in August, while Darwin fell back 1.7 per cent and Perth rents dropped 1.2 per cent.
Of all Australian capitals, Melbourne has the lowest rental yield, at just 3.1 per cent compared to 3.3 per cent last year. Sydney has an average yield of 3.3 per cent, compared to 3.8 per cent 12 months ago.

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