Sydney Property Bubble

Sydney Residential Market Update May 2015
Knight Frank
http://content.knightfrank.com/research/...5-2923.pdf

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House prices around the world: Sydney and Melbourne up but Hong Kong ranked No.1
June 17, 2015
Inga Ting
http://news.domain.com.au/domain/real-es...hp79j.html

Jun 23 2015 at 5:27 PM Updated Jun 23 2015 at 6:06 PM

Mad scramble for government-tenanted assets at Sydney auction

A site with development potential at Hornsby, in Sydney's north shore, sold for nearly $6 million.

by Su-Lin Tan
Money was not the issue at a commercial property auction in Sydney on Tuesday; standing room was.

In a packed room at the Wentworth Sofitel Hotel, private investors, mostly from family trust funds and self-managed superannuation funds, snapped up 27 NSW government and privately tenanted commercial properties from property agent, Burgess Rawson's 97th NSW commercial portfolio.

"Today is testament of the strength of our market," Burgess Rawson director, Dean Venturato said.

"Many were buying for the underlying value of buildings and land, not yield. And government tenancies were also a big factor."

The auction raked in $49 million in sales, with $26 million of that in government-tenanted sales.

A mad scramble ensued for the opening sale of a 4590-square-metre, commercial property with residential development potential, in Hornsby in Sydney's north. It sold for $5.92 million at a yield of 1.89 per cent.

The frantic bids for Hornsby prompted the auctioneer, David Scholes, to call out to the back of the room at one point, "Do you know which property you are bidding on?"

The site which has a NSW government-tenanted 636-sq-m building, also achieved the highest price at the auction.

A private Asian family who missed out on the Hornsby sale fought back to buy a 5952-sq-m industrial property in Silverwater in the west for $5.85 million – the second most expensive property sold.

The Hayer Group, a family private company which has been investing in Coffs Harbour and Grafton since the 1970s, dismissed the buying frenzy as speculative.

They bought a Coffs Harbour, government-tenanted, 2020-sq-m site for $2.75 million.

"It might be boom time, but we bought it for strategic investment reasons. We don't look at whether it is the right time to get in, but if a property has value," director Harbans Hayer said.

At another commercial auction in Sydney, a Newtown commercial building in Sydney's inner-west was snapped up for $5 million and an approved development site in Drummoyne sold for $4.25 million.

Jun 23 2015 at 6:00 PM Updated Jun 23 2015 at 6:00 PM
NSW commits a further $400m and fuels housing construction boom

Housing in Rouse Hill: NSW will spend an extra $400m to make land ready to support new housing. Geoff Jones


by Michael Bleby
NSW will spend a further $400 million to make land for new housing shovel-ready and lay out another $19m to create a planning body that will oversee the state's plan to build 664,000 more homes over the next 15 years.

The latest boost to the Housing Acceleration Fund comes on top of the $566.5m invested in the fund since its inception in 2012 and brings the total spent on land preparation close to a total $1bn.

NSW leads the housing construction boom that is expected to see more than 200,000 new dwelling commencements this financial year and next, but it desperately needs to speed up the production of new homes after a decade of underinvestment. While the state made just over 49,000 hew housing starts in the 12 months to December – the highest total since 2003 – average over the decade to 2014 dipped to just under 35,000, compared with 45,000-plus average in the previous decade.

"The Government is taking concerted action to address housing supply, and therefore housing affordability," Treasurer Gladys Berejiklian said on Tuesday. "With our surplus position, we have put an additional $400 million in the Housing Acceleration Fund, the largest ever single contribution, to go directly towards the infrastructure required in growth areas and to bring housing to market as quickly as possible."

The housing industry welcomed the spend on services to clear land, and lay the crucial infrastructure including water and sewerage, but said the biggest issue holding back housing construction in the state was red tape. Separate funding announced on Tuesday to create the Greater Sydney Commission, legislation for which planning minister Rob Stokes has said will come in coming months, aims to overcome those problems.

"When you think that the (previous Barry) O'Farrell government was unable to legislate significant planning reform in the system, it's important that what everyone's seeing as the biggest issue in NSW – enormous cost and delays in delivery – needs another way of being managed," said Housing Industry Association NSW executive director David Bare. "The Greater Sydney Commission is the great hope for that."

Uncertainty rules over the effectiveness of the commission, however, which the government wants in place by year-end. It will come into being at the same time as the state government seeks to amalgamate a number of separate councils in the Greater Sydney area – in the face of resistance by those very councils.

"It can't be negotiated down to be a toothless tiger," Mr Bare said. "The only true measure of success is that we need to be building at least 50,000 new dwellings each year."

While the budget showed the state's coffers were benefiting from the boom that is seeing Sydney homes rise in value at nearly double the national average rate, with stamp duty revenue doubling over the past four years to $7.2b from $3.6b in 2012, NSW would have to tackle the problem of reforming a tax that made homes less affordable, the industry said.

"We hope NSW continues to step up in the national tax reform debate and begin shifting away from inefficient taxes that hurt housing affordability and the economy," Property Council of Australia NSW executive director Glenn Byres said.

Over 15 years? Damn they are trying hard.

Prosperity is good especially for constantly cash starve govt Down Under
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• Jun 23 2015 at 6:44 PM

• Updated 49 mins ago
NSW budget 2015: Migration and house prices hand Baird a windfall


NSW Treasurer Gladys Berejiklian delivers her Budget speech at State Parlaiment. Dallas Kilponen

by Geoff Winestock
A surge in migration to Sydney from mining states is driving the housing boom that allowed the NSW government on Tuesday to pledge an unprecedented run of surpluses for the next four years and new infrastructure spending.
NSW Treasurer Gladys Berejiklian handed down her first budget, announcing a $713 million surplus in 2015-16 rising to $895 million by 2018-19.
The budget included a $1.8 billion windfall from increased stamp duty on home sales. Ms Berejiklian said the surge in house prices put NSW in "uncharted territory" and workers returning to NSW are a major factor adding to demand.
"Our population continues to grow, helped in part as people move back to NSW from the resource regions," Ms Berejiklian said.
Thanks largely to the housing boom, NSW gross state product is expected to grow at 3.5 per cent in 2015-16, compared with 2.5 per cent for economic growth in the whole of Australia.
The Treasurer said the Coalition's tight control of expenses deserved much of the credit for the run of surpluses but she also admitted the Sydney housing boom has rained money on the re-elected Baird government. The forecast for the state's stamp duty revenue over the next four years in the current budget is $1.8 billion higher than at the time of the half-yearly review just six months ago.
Annual stamp duty revenue is expected to reach $8.6 billion in 2018-19, triple the level of a decade ago and double the amount when the Coalition took office in 2011.
But the budget papers warn the good times may not last.
"The potential for sharp corrections is a risk to the state's revenue outlook."
The budget expects stamp duty will keep rising at an annual average rate of 4.2 per cent.
NSW Opposition Leader Luke Foley warned that the state was too reliant on stamp duty and said Ms Berejiklian should force the Abbott government to reverse $25 billion in cuts to health and education announced in the 2014 federal budget that will hit the state by 2018.
Ms Berejiklian said the Abbott government cuts were "unsustainable" and she was looking to a "constructive discussion" with the federal government about state-federal financial relations. She said it was positive that SA premier Jay Weatherill had made a proposal to extend the GST to financial transactions to help find new sources of tax for the states but she would not say if she approved of the idea.
A CHANGE IN FORMULATION
The change in the formula for distributing the GST, which is designed to even out state finances, will cost NSW $517 million this year.
The surplus announced in the NSW budget would have been $2.5 billion if not for for a change in accounting rules which treats rail infrastructure spending as recurrent expenditure rather than investment. The change follows budget practice in Victoria and Queensland but its effect has been to reduce the budget surplus to $713 million.
NSW premier Mike Baird has promised to bank any windfall surpluses from tax revenue and put them in a special infrastructure fund. It now appears that in 2014-15 it will have $1.5 billion more than expected at budget time.
The budget promised few new measures although it included about $591 million for new infrastructure projects including schools, hospitals and planning for a metro rail line under the central business district.
It also included extra $400 million for developing home sites in outer Sydney to increase supply and take some heat of the market.
The budget does not include the impact of the sale of 49 per cent of the state's electricity network, which was the key issue at the recent state election.
But it details the damage to the state's finances caused by a decision by the Australian Energy Regulator in February to impose price cuts on the network businesses.
The government says dividends and tax equivalent payments from the networks will fall from $1.2 billion last year to $200 million in 2018-19. It is not clear how that will affect the government's plans to raise $13 billion from selling the networks.

As mentioned before it is now coming into effect. A lot of investors looking to accumulate and expand their highly leveraged portfolios will be hitting a serviceability wall.

CBA tightens home loan rules

The country's biggest bank is taking further steps to tighten credit policies for home loan customers, as lenders face pressure to slow growth in the mortgage market.

Commonwealth Bank of Australia informed mortgage brokers on Friday of changes that will mean new borrowers' existing debts and their incomes are assessed more stringently.

CBA will apply a "servicing loading" of 20 per cent to all repayments on existing home loans and lines of credit held by customers. The loading – an approach also used by other banks – means customers applying for new loans will have their ability to repay their existing loan more closely scrutinised. The 20 per cent loading means repayments that were assessed at $1000 a month will now be assessed at $1200 a month.

CBA also said it would also take a tougher line when assessing borrowers' income. It will accept only 80 per cent of income from overtime, bonuses, and investment income when it is assessing home and investment loan applications.

In addition, for all new investment loans with a loan-to-valuation ratio above 90 per cent, the bank will not consider the tax breaks borrowers receive from negative gearing when it is deciding whether to approve the loan application.

As part of the changes, CBA said the maximum loan-to-valuation ratio for all owner-occupied home loan applications would be 95 per cent. The bank's website says its existing policy is to allow LVRs of up to 97 per cent, including the cost of mortgage insurance.

"As the nation's largest home loan provider we constantly review and monitor our loan portfolio to ensure we are maintaining prudent lending standards and meeting our customers' financial needs," the note to brokers said.

The changes are similar to steps already taken by other banks, as the industry seeks to comply with the Australian Prudential Regulation Authority's cap of 10 per cent a year on investor credit growth.

Latest official figures show CBA was the only major bank growing more slowly than this target.

It comes after the CBA and all its major rivals also reduced the interest-rate discounts offered to new investor borrowers.

http://www.valuebuddies.com/thread-4554-...#pid115030

You are basically implying that all the recent buyers in Sydney are unaware of the tightening by major banks down under...

How can that be possible?

No Vested Interests

(24-06-2015, 12:52 PM)BlueKelah Wrote: As mentioned before it is now coming into effect. A lot of investors looking to accumulate and expand their highly leveraged portfolios will be hitting a serviceability wall.

CBA tightens home loan rules

The country's biggest bank is taking further steps to tighten credit policies for home loan customers, as lenders face pressure to slow growth in the mortgage market.

Commonwealth Bank of Australia informed mortgage brokers on Friday of changes that will mean new borrowers' existing debts and their incomes are assessed more stringently.

CBA will apply a "servicing loading" of 20 per cent to all repayments on existing home loans and lines of credit held by customers. The loading – an approach also used by other banks – means customers applying for new loans will have their ability to repay their existing loan more closely scrutinised. The 20 per cent loading means repayments that were assessed at $1000 a month will now be assessed at $1200 a month.

CBA also said it would also take a tougher line when assessing borrowers' income. It will accept only 80 per cent of income from overtime, bonuses, and investment income when it is assessing home and investment loan applications.

In addition, for all new investment loans with a loan-to-valuation ratio above 90 per cent, the bank will not consider the tax breaks borrowers receive from negative gearing when it is deciding whether to approve the loan application.

As part of the changes, CBA said the maximum loan-to-valuation ratio for all owner-occupied home loan applications would be 95 per cent. The bank's website says its existing policy is to allow LVRs of up to 97 per cent, including the cost of mortgage insurance.

"As the nation's largest home loan provider we constantly review and monitor our loan portfolio to ensure we are maintaining prudent lending standards and meeting our customers' financial needs," the note to brokers said.

The changes are similar to steps already taken by other banks, as the industry seeks to comply with the Australian Prudential Regulation Authority's cap of 10 per cent a year on investor credit growth.

Latest official figures show CBA was the only major bank growing more slowly than this target.

It comes after the CBA and all its major rivals also reduced the interest-rate discounts offered to new investor borrowers.

As said before, very few foreigners need 80%. Tightening impact local which is good to curb multiple property investment

(24-06-2015, 09:02 PM)newbie11 Wrote: As said before, very few foreigners need 80%. Tightening impact local which is good to curb multiple property investment

Yup this should affect a lot of local investors which invariably have multiple properties as part of their portfolio expansion which involves using periodic revaluation of existing properties to "extract equity" from price rises to fund more leverage buying of the next property.

Though changes are not as extreme as singapore's 60% TDSR. For the leverage hungry Aus investors who often buy multiple property with 95%/97% LTV interest only loans and servicing calculated for interest only repayments, changes like recalculating servicing to 7.25% Principal+interest, instead of at the lower sub 5% interest only, are a big hit to their serviceability and hence their borrowing capacity and hence their "buying power"

APRA has been warning the banks about measures for months but finally I think some plug has been pulled and all the banks are conforming to stricter standards this month without any formal regulation being announce, like in New Zealand. APRA has also stated they will not hesitate to impose further formal restrictions if new investor loans continue to increase at a >10% rate.

Since tightening has only started this month, pretty sure for many investors it has come as a sudden change as most were expecting more interest rate cuts and banks to continue giving out cheaper loans with lower serviceability criteria. If you read the local property forums there, there are already investors there complaining about not being able to obtain new loans and mortgage brokers warning about the changes.

Auction rates still high at 80%+ clearance in sydney but not as feverish as the 90%+ last couple months. Coupled with first property price drops across most capital cities in May last month after months of accelerated price rises, whether this is the beginning of a downtrend remains to be seen.

(24-06-2015, 10:08 PM)BlueKelah Wrote:

(24-06-2015, 09:02 PM)newbie11 Wrote: As said before, very few foreigners need 80%. Tightening impact local which is good to curb multiple property investment

Yup this should affect a lot of local investors which invariably have multiple properties as part of their portfolio expansion which involves using periodic revaluation of existing properties to "extract equity" from price rises to fund more leverage buying of the next property.

Though changes are not as extreme as singapore's 60% TDSR. For the leverage hungry Aus investors who often buy multiple property with 95%/97% LTV interest only loans, the changes are a big hit to their serviceability and hence the credit available to them and hence their "buying power"

APRA has been warning the banks about measures for months but finally I think some plug has been pulled and all the banks are conforming to stricter standards this month without any formal regulation being announce, like in New Zealand. APRA has also stated they will not hesitate to impose restrictions if new investor loans continue to increase at a >10% rate.

Since tightening has only started this month, pretty sure for many investors it has come as a sudden change as most were expecting more interest rate cuts and banks to continue giving out cheaper loans with lower serviceability criteria. If you read the local property forums there, there are already investors there complaining about not being able to obtain new loans and mortgage brokers warning about the changes.

Auction rates still high at 80%+ clearance in sydney but not as feverish as the 90%+ last couple months. Whether that is the beginning of a downtrend remains to be seen.

On paper you are not wrong. However, in reality after such a run and massive external injection into an under supply market that has been affected due to policy mismanagement on the part of several state govts, what we are seeing helps to explain the reality.

I have always say Australian property market is a highly complex mkt. Given that Australia is so big, there is always an option to move to a country within a state, move to different type of housing within a state, move interstate and when u can't afford - rent.

The dynamics is simply beyond many Singaporeans. Like I always say before we made any definitive statements on a particular Australian region's property mkt, take many steps back and understand.

If you deemed too high risks, don't buy. However, that doesn't mean that someone with loads of hard cash won't buy and outbid others and create a stampede. In the end, there may just be many empty investment properties that are lying around within a certain state and no amount of measures or moral suasion would have much impact.

No Vested Interests