Australia Property

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Aug 5 2015 at 12:25 PM Updated 16 mins ago

Low interest rates crucial for bridging off-the-plan apartment finance

Property investors need to look around for best rates to bridge funding shortfalls. Rob Homer

by Duncan Hughes
Property investors caught with off-the-plan apartments delivering lower rents and capital growth than predicted at purchase need to shop around for the best rates to meet bigger repayments.

Real estate agents and developers are warning that many investors with off-the-plan apartments coming up to completion could face shortfalls of more than 20 per cent in both rental income and valuations.

"The investment lending landscape is rapidly changing," says Chris Foster-Ramsay, managing director of Capital Home Loans. "The banks are capping loan-to-value ratios to 80 per cent, increasing interest rates for investment lending and/or interest-only loans by up to 25 basis points [and some are] completely pulling out of the investment lending market."

The good news is that competition for the owner-occupier market is expected to intensify, particularly principal and interest loans.

"Those who make additional principal and interest repayments over and above the minimum required by the bank and can present a history to their lender will benefit by potentially being able to negotiate better discounts, essentially because they are lower risk," adds Foster-Ramsay.

Mortgage brokers estimate there are 90,000 apartments being constructed in Australia that have been sold off the plan but not yet settled. The purchasers of about 20 per cent of these, or 18,000, have paid a deposit of just 10 per cent of the full purchase price, according to analysis of investor statistics from CoreLogic.

As little as 10 per cent of the purchase price has been required to secure an apartment and buyers typically arrange finance ahead of settlement as the apartment nears completion – often years later.

HOT WATER

Many investors are finding loans are becoming more expensive and harder to get when they seek financing for the balance of the apartment at settlement, particularly when the apartments are revalued.

A real-life example has been provided by Beller, a diversified property group with offices in Australia and China. The owner's name and address of the property have been withheld.

An off-the-plan apartment was purchased for $485,000 on a 10 per cent deposit ($48,500), which meant 90 per cent, or $400,000, equity was required.

The bank valuation at completion of the apartment was $400,000, a 17.5 per cent discount on the purchase price. In addition, bank borrowing has been reduced to 80 per cent of the valuation, which is 80 per cent of $400,000 ($320,000).

That means the purchaser has to come up with an extra $116,500.

The expected rent for the apartment at the time of sale was $460 a week, which is a net gross rental return of about 5 per cent on the original $485,000 purchase price.

The actual rent is $360 a week – that's a return of 3.85, which is 21 per cent discount on the original estimates.

National Australia Bank and Australia and New Zealand Banking Group have capped their loan-to-value ratios at 90 per cent.

Westpac has announced investors will be required to have a minimum of 20 per cent deposit for investment loans.

Decisions by ING and AMP to tighten, or even cease, new lending reflects their concerns about being swamped by borrowers turned away by major banks.

Barry Marshall, principal of Barry Marshall Real Estate, a boutique Melbourne-based agency, says thousands of investors who have purchased off-the-plan apartments on higher loan-to-value ratios and lower interest rates than currently on offer from the major lenders will be seeking alternatives.

"Investors have to get the money from somewhere," Marshall adds.

SMALLER LENDERS SWOOP IN

Smaller lenders, such as Perth-based Bluebay Home Loans, which describes itself as an alternative to the majors, has written to brokers stating it will keep a maximum loan-to-value ratio of 90 per cent and maintain competitive rates.

"No changes here," a spokesman said. "It's lending as usual."

Other lenders, such as Liberty Financial, which has assets valued around $3.5 billion, claims it will take advantage of opportunities created by borrowers seeking an alternative as mainstream banks tighten lending.

"There is an opportunity for us to grow and we are well-capitalised to take advantage of these changing times," said Peter Riedel, chief financial officer.

"Recent regulatory changes have been very positive to redress the imbalance between the Australian Prudential Regulatory Authority-regulated and non-regulated lenders. We definitely expect the curb on investment lending will be healthy in redressing the concentration."

A review of the best standard variable rates on offer to cover the funding gap – assuming the investor meets lending criteria – shows shopping around can produce more competitive rates.

SMSF HURDLES

Investors facing a funding squeeze on an off-the-plan property in their self-managed superannuation fund need to clear several more hurdles created by contribution caps and legal restrictions on their trust.

A super fund trustee has entered a legal contract with the seller that is fully enforceable. A trustee cannot walk away from the agreement without serious legal repercussions.

"You can top up any shortfalls with super contributions to your concessional cap or non-concessional caps," says Aaron Dunn, managing director of The SMSF Academy.

But if the concessional contributions cap are exceeded these amounts may be subject to excess contributions tax or refunded and reassessed by the Australian Taxation Office to include the amount within your personal tax returns, along with an interest charge, he says.

Some lawyers suggest a new contract outside of the fund.

"I have seen circumstances where the vendor will allow for a new contract to be drawn up," says Dunn. "In such an instance, you would expect the original deposit to refunded and the new purchaser pay a deposit the new deal," he says.

Those considering this need expert legal and tax guidance to ensure it does not create contract and tax problems.

Other options might be to seek a top-up loan for the shortfall from a related party, such as another member of the fund.

"This can create potential problems in the ranking of the mortgage if there is a default or bankruptcy," says Dunn. "The related party will rank behind the bank in the event of default."

There will also be additional costs in drawing up a related-party loan agreement.

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CBA warned on potential Brisbane, Perth property ‘collapse’
THE AUSTRALIAN AUGUST 05, 2015 1:04PM

Michael Bennet

Reporter
Sydney

The outlook for Perth and Western Australia is “particularly troubling.” Source: News Corp Australia

The Perth and Brisbane property markets are increasingly vulnerable to a collapse similar to the Gold Coast during the global financial crisis, a scenario that would leave Commonwealth Bank the most vulnerable to losses, according to a leading analyst.

Ahead of CBA’s (CBA) highly-anticipated annual profit next week, CLSA analyst Brian Johnson today told clients he was concerned the housing market will become “bifurcated”, with Sydney and Melbourne remaining “uber-expensive” while Brisbane and Perth were “vulnerable to a regional collapse akin to the Queensland’s Gold Coast during the GFC”.

“Every channel check we do highlights Perth/Western Australia as particularly vulnerable given already weakening property prices, slowing population growth, a slower WA economy, elevated housing starts and falling rents,” Mr Johnson, a veteran banking analyst, said.

The warning came as Genworth Mortgage Insurance Australia — which insures banks’ riskier loans — reported a rise in its loss ratio to 22.1 per cent, from 19.6 per cent, as delinquent loans ticked higher in Queensland and WA “where economic conditions are not as strong”.

Perth dwelling prices fell 0.3 per cent for the year to July 31 and a larger 0.7 per cent in the past quarter, CoreLogic RP Data said this week. In contrast, Sydney soared 18.4 per cent and 5.4 per cent in the same periods, respectively.

“(The) CoreLogic RP Data July 2015 Home Loan Index release specifically highlights the divergence between Sydney and Perth residential prices but more alarmingly shows WA/Perth investment property rents being cut,” said Mr Johnson.

“We find the outlook for Perth/WA particularly troubling.”

Amid booming prices in Sydney and Melbourne, regulators have in the past year grown increasingly concerned that lending standards are slipping, as banks battle to lend and buyers take advantage of record low interest rates.

In December, the Australian Prudential Regulation Authority stepped in and told banks to limit lending growth to property investors to 10 per cent a year.

After their previous efforts to slow the investment boom failed, banks have in recent weeks increased borrowing rates to landlords to comply with the speeding limit, which Mr Johnson said added to the “heady mix” of conditions in Western Australia.

“Despite the banks constant shrill of super-safe housing, APRA have comprehensively dismissed this given the major banks all failed the APRA November 2014 mortgage stress test and in May APRA highlighted serious deficiencies in bank housing lending credit underwriting standards,” Mr Johnson said.

He said while Westpac’s housing portfolio appeared riskier than CBA’s, the latter’s acquisition of Bankwest left it “most vulnerable to a Perth/WA housing price correction”.

Investors will get the chance to comb through CBA’s full-year profit next week for signs of stress.

“The focus of the results will likely be on signs of deterioration in asset quality, how quickly bad and doubtful debts normalises and CBA’s mechanism for raising capital,” said UBS analyst Jonathan Mott, tipping profit to come in at $9.1 billion.

While expressing concern about growing risks in the housing market, Moody’s analyst Ilya Serov this week said any increase in the major banks’ net credit costs would be contained “well below the long-run average” due to record low interest rates and healthy corporate balance sheets.

“Notwithstanding the deteriorating operating environment, we expect banks’ financial metrics to remain broadly healthy, which underpins our stable outlook on the banking system,” Mr Serov said.

Another analysis points to cracks in Australia’s housing construction boom, with fears it will peak in the next 12 months.

While many have touted the property sector as the nation’s next big hope for the economy as mining investment fades, Nomura strategist Andrew Ticehurst says it may soon run out of steam.

“Maybe we’ve fired that bullet, he said.

“It looks like we’ve got a bit less support for the economy over the year ahead coming from housing.”

Mr Ticehurst said leading indicators like home loans and building approvals appear to be losing momentum.

While the number of people borrowing money to buy existing homes is rising, there’s been some moderation in the number of people getting loans to build a house, he said.

“So when you look at turnover in the established housing market, that’s great for real estate agents and conveyancers and solicitors and accountants,” he said.

“But it does relatively less for GDP, and it certainly doesn’t employ builders.”

With AAP

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'Cowboy' uber-landlords put housing market at risk

Australian Financial Review
Fleur Anderson
54 mins ago

A house - AAP Image/Paul Miller
Housing boom set to peak in the next year
A residential apartment building is seen at Broadbeach on the Gold Coast.
© AAP Image/Dave Hunt A residential apartment building is seen at Broadbeach on the Gold Coast.


Low interest rates have created a growing class of uber-landlords with huge property portfolios who risk big losses if the market turns or rates rise, warns the chairman of a parliamentary inquiry into the housing market.

Coalition MP John Alexander agreed with Reserve Bank governor Glenn Stevens that overheated property market, in Sydney and Melbourne, had the potential to cause serious "social dysfunction".

"Some have said we are on track to becoming a Kingdom where the Lords own all the land and the biggest Lord will be King and the enslaved serf tenant is paying rent to the Lord to become wealthier. Is that an over-dramatisation or is it very, very close to the truth?" Mr Alexander said.

Mr Alexander said his inquiry had found lending to housing investors was now routinely outstripping lending to owner-occupiers, and the "contagion" could be spreading from Sydney to other regional areas.

The member for Bennelong in Sydney's northern suburbs said people from Geelong were reporting investors from as far afield as Perth and the Gold Coast buying up Geelong rental properties with a rental yield of 6.5 per cent.

"If home buyers are being eliminated from the market in Sydney, are they now being eliminated from the market in Geelong? These are the questions we have to ask," Mr Alexander told The Australian Financial Review, ahead of the House of Representatives inquiry hearing into home ownership Thursday and Friday in Sydney

LANDLORDS 'POSITIVELY GEARED'

Mr Alexander said most of the political debate over negative gearing and the 50 per cent discount on capital gains tax was dominated by "people who don't understand what is happening because the smart investor is positively geared at this point".

"When interest rates were at 10 per cent and rentals yields at 4 per cent, for every million dollars in property an investor held, they had to fund a $60,000 loss so you were limited to the amount of properties you could buy by your capacity to have other income to fund your real estate holdings losses," he said.

"With positive gearing, an investor who might have been limited to $3 million or $4 million worth of properties may now have $30 million or $40 million worth of properties."

The latest Australian Taxation Office statistics from the 2012-2013 income year show low interest rates have allowed some of the country's 1.3 million landlords to cut back their tax deductions on investment properties and make a profit for the first time, slashing the cost of the nation's negative gearing regime by almost a third.

According to the most recent figures, the overall cost of negatively-geared rental properties has fallen by $2.4 billion, or 31 per cent, due to record-low interest rates and higher rents.

'SOME REAL COWBOYS'

Mr Alexander said negative gearing was no longer relevant now that interest rates were lower than rents.

He said the House of Representatives inquiry had started to uncover evidence that many landlords, now in profits because rents were returning more than the investors' interest rate payments, could destabilise the market because of their sensitivity to interest rate movements.

Even an increase in home loan rates from the 4 per cent to 6 per cent was not a 2 per cent increase, but a 50 per cent increase in investors' mortgage repayments.

Mr Alexander said there were investors with $30 million housing portfolios with 60 properties would have to find $600,000 to cover their losses with loan rates moving from 4 to 6 per cent.

Even if they could afford to fund $200,000 in losses, they would have to sell 40 properties to get to a comfortable level of gearing.

"There are more and more properties owned by fewer and fewer people, and it's an area of concern," he said.

"What constrained them before doesn't constrain them now. You might find some are very prudent people but within that group, some are real cowboys who are riding this wave for all its worth."

These investors were crowding homebuyers out of the market in Sydney, and were moving into other regional areas like Geelong where some investment properties were returning rental yields of 6.5 per cent.

RBA TO BE QUIZZED

Reserve Bank officials will appear before the inquiry in Sydney on Thursday and Mr Alexander flagged investors crowding homebuyers out of the market could fall within the Reserve Bank's responsibility.

"Reading the charter of the Reserve Bank is instructive because it says they are charged with the stability of the currency, the maintenance of full employment, economic prosperity and welfare of the people of Australia," he said.

"If you take that charter and you understand we have people ranging from nurses to the very wealthy investing in real estate, and very high proportion of people owning their homes – about 60 per cent – and half of those are mortgaged, then the economic prosperity of people is expressed in their ownership of property."

The Greens will on Wednesday release Parliamentary Budget Office costings showing the abolishing the discount on capital gains tax and negative gearing changes could return $127 billion to the budget over the next decade as part of "fixing structural unfairness in the tax system".

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James Packer’s Vaucluse mansion sells for record $60m
THE AUSTRALIAN AUGUST 06, 2015 12:09AM

James Packer's Vaucluse home has been sold for a record price. Source: News Limited

Billionaire James Packer has sold his sprawling Vaucluse mansion for more than $60 million, the highest price ever paid for a property in Australia.

La Mer, the six-storey compound on Wentworth Road sold to an Australian buyer through exclusive property agents Christie’s International, the Daily Telegraph reports.

While the sale details remained confidential, sources confirmed contracts had been exchanged, and said that based on property valuations, the sale price may emerge as closer to $80m.

Because the buyer reportedly is an Australian, it will not be subject to Foreign Investment Review Board review.

The sale easily tops the previous Sydney record of $52m paid in 2013 for the Point Piper mansion Altona.

Mr Packer will split the proceeds with his former wife Erica Baxter. The couple, with their three children, shared the mansion for just a few months before the two separated in 2013 and subsequently divorced.

However, given the huge investment Mr Packer poured into the property, the sale price might not represent a big gain.

The mansion compound features a generous entertaining space and family quarters with six bedrooms, as well as a glassed-in winter garden, a wellness room, buy, 20-seat cinema, a lift and a 20-car soundproofed garage.

Set on 3345 sq m, it boasts views across the harbour to the Sydney Harbour Bridge and the Opera House.

The Packers bought the 1972 Guilford Bell-designed house in 2009-2010, paying $30 million in land alone, before spending millions on extensive renovations and extensions.

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Aug 5 2015 at 3:54 PM Updated Aug 5 2015 at 8:47 PM

Banks in new push into residential property

Major banks are offering refunds on lenders' mortgage insurance and other incentives to encourage lower-risk home buyers. Graham Tidy

by Duncan Hughes
Major banks, which have been clamping down on investors in residential property, are offering mortgage brokers a new range of incentives to encourage lower-risk residential home buyers.

Bank of Melbourne and St Georges Bank, which are part of the Westpac Group, are among those offering refunds on lenders' mortgage insurance, $2000 cash back for refinancing and fixed-rate decreases on owner-occupier home loans by up to 0.3 per cent.

"We remain focused on helping owner-occupiers," a spokesman for Bank of Melbourne claims in a letter to brokers advising of the new rates.

Chris Foster-Ramsay, managing director of Capital Home Loans, said: "As the lending landscape changes there will be more and more competition for the owner-occupier market."

A clamp-down on investment lending by the majors is creating some of the most competitive conditions for borrowers since the beginning of the global financial crisis in 2008, according to mortgage brokers and real estate agents.

Low documentation lenders, building societies and other small lenders are scrambling to build lending books and market share as major lenders' higher rates and tougher conditions push borrowers to look for alternatives, they claim.

Smaller lenders, such as Perth-based Bluebay Home Loans, which describes itself as an alternative to the majors, has written to brokers stating it will maintain a maximum loan-to-value ratio of 90 per cent and maintain competitive rates.

Other lenders, such as Liberty Financial, which has assets valued around $3.5 billion, claims it will take advantage of opportunities created by borrowers seeking an alternative as mainstream banks' tighten lending.

Some lenders offering cheaper rates and lower loan-to-value ratios fear pent-up demand for investment loans could trigger a flood of applications, overwhelming administrative systems and risking a breach of caps.

"Smaller lenders are likely to eventually exhaust their capacity to lend," added Tim Brown, chair of the Mortgage and Finance Association of Australia.

"It is only a matter of time before most will have to stop lending above loan-to-value ratios of 80 per cent," said Mr Brown about lender response to changing market conditions.

Jul 25 2015 at 12:15 AM Updated Jul 25 2015 at 3:47 AM
APRA bank loan changes put the brakes on property investors

The consensus among economists is that the housing boom has peaked, writes Larry Schlesinger.


Banks have turned the screws on property investors. Henry Zwartz


by Larry Schlesinger
The wheels might not have come off yet but the investor demand that has driven Australia's property boom is starting to wobble.

This week's announcement by the Australian Prudential Regulation Authority (APRA) that the big four banks and Macquarie Bank must hold more capital against their gargantuan mortgage books to provide a buffer against defaults will apply further pressure to housing growth. The banks are already increasing home loan rates to meet more expensive funding costs.

Combined with the blizzard of tougher lending policies already introduced by the banks this year, to slow down investor lending growth per bank to less than 10 per cent a year, the consensus among economists is that the housing boom has peaked.

Predictions from respected economic forecaster BIS Shrapnel that Australia will have built too many new homes by 2018 makes the picture a lot gloomier, especially for those looking for quick capital gains.

Property analysts say Sydney and Melbourne, where there has been the greatest acceleration in prices and where investors have dominated, will be hardest hit. House prices in Sydney have surged 20 per cent over the past year, and 10 per cent in Melbourne.

Brisbane, Adelaide, Hobart and Perth, where there has not been the same price growth, will not see the falls, analysts say. Darwin, hit by the slowdown in resources, has had little price growth this year. In Canberra, where house prices have increased by about 5 per cent over the 12 months to June, Domain senior economist Andrew Wilson expects more house buyer activity, although apartment prices are falling thanks to oversupply.

This is how much the banks have turned the screws on investors. All have reduced loan-to-value ratios (LVRs) on investor loans, with Westpac, the nation's biggest lenders to investors, slashing its LVRs earlier this month from 95 per cent to 80 per cent (meaning a $200,000 deposit if you're buying a $1 million dollar home). Investors must be able to service loans at higher than 7 per cent (a 2 per cent buffer), pushing more to the sidelines or requiring them to downsize their buying ambitions.

Banks have also removed mortgage discounts from investor loans and have cut back on offering riskier products such as interest-only loans. Some, such as ANZ Banking Group, have removed the cash-flow benefit of negative gearing from investment lending policies and both Commonwealth Bank of Australia and Westpac have reduced the proportion of rental income they will consider when assessing mortgage serviceability.

"Confidence from investors in markets like Sydney is going to start to wane," says CoreLogic RP Data's head of research, Tim Lawless. "There is a growing acceptance that the market has run its course."

WEAKER GROWTH

Logically, fewer investors out there means less competition for property and less pressure on house price growth, which, according to economists including Paul Bloxham of HSBC and Shane Oliver of AMP Capital, has already peaked.

Both economists anticipate weaker levels of growth for the remainder of the year and into 2016, with expectations that prices will start falling from 2017 when the Reserve Bank of Australia could start raising rates again.

"If mortgage rates rise as a consequence of more stringent capital requirements on housing lending, this is likely to be a drag on housing activity because mortgage rates are still the key driver of activity in the established housing market," Bloxham says.

Oliver, who expects prices to fall by between 5 per cent and 10 per cent in 2017, says it's unclear yet what impact the APRA measures will have on the housing market. But he says the RBA and APRA both want to see a slowdown in lending to investors and more heat coming out of this market.

What the RBA does not want to see, Oliver says, is rising rates for existing mum and dad borrowers. The impact of this would go beyond the housing market into sectors such as retail spending. Were this to happen, both Oliver and Bloxham believe the RBA could cut rates to dampen the effects. "It's a 50-50 call whether there's another rate cut," Oliver says.

The latest data from the country's biggest mortgage broker, Australian Finance Group, which shows investors in NSW quitting the market in droves, suggests the cumulative impact of the changes is having the desired effect.

Its June-quarter figures show that the proportion of investor loans in NSW, consistently at about 50 per cent of all lending over the past 12 months, fell to 42 per cent over a three-month period. This is likely to affect investor buying across the country.

"Investor lending has returned to levels we are more used to," AFG chief financial officer David Bailey says.

Depending on how much lenders increase rates due to the APRA changes, Bailey says it may bounce some people out of the market. "It's very early days, but initial discussions with some lenders suggest increases of between 10 and 20 basis points."

Other analysts, such as CLSA's Brian Johnson, believe the rate rises could be higher but the clear message is that they are going up.

ANZ and CBA have already moved, announcing they will lift interest rates on a range of fixed and variable investment loans by between 10 and 40 basis points from August to ensure investment lending growth does not exceed APRA's ceiling of 10 per cent.

But both banks will also cut rates by between 30 and 40 basis points on fixed-rate loans for owner-occupiers, with ANZ's Australian chief executive, Mike Whelan, telling Fairfax Media there will be a heightened focus on "owner-occupier and first home buyers in the country".

PERIOD OF UNCERTAINTY

Gerald Foley, managing director of National Mortgage Brokers, says first-time investors without the equity and cash flow to satisfy the banks' new requirements will be the ones most affected.

More broadly, the changes are creating an unusual period of uncertainty between lenders and borrowers, particularly for investors who have employed a particular investment strategy.

"In the short term it won't have a significant impact, but if there is a sustained period of continued tightening it will have an impact. It will take confidence out of the marketplace," Foley says.

The winners out of all this, he says, could be first home buyers. "With some investors sitting on the sidelines, there may be better opportunities for first home buyers to acquire property, which is potentially part of the impact regulators want to see," he says. "Banks still have money to lend and are offering sweeteners on the owner-occupier side."

CoreLogic RP Data's Tim Lawless believes there will be a correction, "but it won't be of the magnitude that some commentators are forecasting – 20 to 30 per cent. It will be a gradual moderation."

But certain pockets of the market are at greater risk of correction, he adds. "When you look at areas of the market most susceptible, it's the investment markets where there is a lot of new supply – the inner-city apartment markets and the outer suburban greenfield housing estates."

Among the inner-city investor-dominated apartment markets, Lawless points to Melbourne, where there is much greater geographic concentration around the central business district, Docklands and Southbank.

"The risk is much less in Sydney though, because dwelling approvals for apartments are not as high as Melbourne and the geographic distribution is much broader, spreading out to places like Parramatta, Lane Cove and Chatswood."

Others, such as veteran mortgage market analyst Martin North, expect a "slightly negative impact on mortgage pricing" from the APRA changes, but do not believe there will be much impact on the broader housing market.

"House prices are a factor of supply and demand," North says. "There is rising supply, but also strong demand. Compared to other asset classes housing is doing a lot better, plus there are all the tax concessions like negative gearing and the ability to offset capital gains.

"The supply of investment loans will still be there. Remember that not all banks are growing their investment lending at 10 per cent. Some will see it as a target. And there's also the opportunity for the non-banking sector to fill the gap if the majors disappear from the radar."

Foley says this is already happening: "We are seeing increasing appetite in the broker market for specialist lenders like Pepper, Liberty and LaTrobe who can better tailor deals in the current market."

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Home owners warned of slower price growth
THE AUSTRALIAN AUGUST 07, 2015 12:00AM

Kylar Loussikian

Journalist
Sydney
Home owners warned of slow growth
The rapid price growth benefiting homeowners will not be the norm for long. Source: Supplied

Housing is expensive, but don’t ­expect the rapid growth in prices recorded since 1990 to continue for long, a senior ­Reserve Bank officia­l has warned.

Appearing before the parliamentary committee into home ownership, Luci Ellis, the RBA’s head of financial stability, said there were longstanding supply challenges pushing housing prices higher, but the rapid price growth benefiting home owners would not be the norm for long.

The transition into a “low-inflatio­n, financially liberalised world” in the early 1990s had boosted house prices at a more rapid pace than incomes, but this period was over, Dr Ellis said.

“We anticipate that nominal price growth will be lower on average than it was in the 15 years to 2005,” she said.

House values grew at an average of 14 per cent a year across combined capitals without ­accounting for inflation during that period, according to BIS Shrapnel figures, while Sydney house prices rose by 16.45 per cent a year. But house prices appear to be rising faster now than during that period, with the latest CoreLogic figures showing combined capital values rose 15.3 per cent over the past 12 months.

Dr Ellis reiterated concerns about the effects of negative gearing combined with capital gains tax discounts on real estate ­creating an opportunity for higher gearing on property investments, which the RBA had raised in its submission to the inquiry.

Dr Ellis said while different kinds of investments should be treated in the same way, some asset classes including property ­offered more prospect for capital gain.

She said the ability to negatively gear property comforted ­investors and in turn led them to higher levels of debt.

“The combination of negative gearing and concessional taxation of capital gains creates an incent­ive for people to invest in assets that produce capital gains versus assets that don’t, and the fact that you have made available negative gearing ... makes people more comfortable about that leverage.”

Joe Hockey has dismissed calls for a review of negative gearing, while the property industry said any changes would be counter-productive.

The Business Council of Australia yesterday backed the RBA’s call for a reconsideration of those tax arrangements, with a submissio­n to the federal government’s tax white paper noting that the discount “can distort investor ­behaviour, particularly at a time of rapid capital gains”.

“Concessional treatment of differen­t forms of saving should be reviewed with the aim of promoting more neutral concessional treatment, taking into account implicati­ons for other taxes and income distribution,” the BCA said.

Dr Ellis said Australians didn’t spend more for housing than other similar economies, and often ­received “more housing”.

“Price-to-income ratio is about the middle of the pack among a rank of other countries and, in the sense that a lot of us live in big ­cities and we have quite big houses relative to other countries, we’re more likely to have detached houses than apartments than in many other countries,” she said.

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Aug 6 2015 at 5:20 PM Updated Aug 7 2015 at 6:43 AM

Landlord nation: 18,000 people own more than six properties



by Su-Lin Tan

Nearly 10 per cent of rental property investors own three or more properties, and nearly 18,000 own six or more, the latest statistics reveal, and the number is rising.

The 2013 tax statistics show 16 per cent of taxpayers, or nearly two million people, own investment properties; about 110,379 taxpayers own more than three properties; about 18,000 own more than six properties; 40,283 own four properties; and 16,600 owned five.

"The number of people with more than one property would be a lot higher now than the 2012-13 financial year," Housing Industry Association's senior economist, Shane Garrett said.

"There are simply more people in the country now and and the property market has since become more favourable."

"Dwelling prices have accelerated in key markets, rental price growth has been consistently higher than inflation since 2013 so mortgage costs have improved."

IMPACT OF LOW RATES

On Wednesday, the chairman of a parliamentary inquiry into the housing market, Coalition MP John Alexander, warned that low interest rates had created a growing class of uber-landlords with huge property portfolios who risk big losses if the market turns or rates rise.

"There were investors with $30 million housing portfolios with 60 properties would have to find $600,000 to cover their losses with loan rates moving from 4 to 6 per cent," Mr Alexander said.

The HIA also said in the year to May 2015, the value of investor lending in NSW totalled $65.8 billion. That compared with $44.93 billion in lending to owner-occupiers (excluding refinancing) over the same period.

The value of owner-occupier home loans was $144.1 billion, compared with $146.9 billion for investor loans.

"This is the first time I can remember investors out-borrowing owner-occupiers on a national level," Mr Garrett said.

"But it is important to bear in mind that investor participation in the market has the effect of boosting new housing supply, and alleviating shortages of accommodation in Sydney's tight rental market."

Mr Garrett said the rental property demand would not slow as population growth continued and economic growth fired up in light of the lower Australian dollar.

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Aug 6 2015 at 5:01 PM Updated Aug 6 2015 at 5:27 PM

Tighter bank funding 'positive' for residential market

A shadow has been cast over the development sector with banks tightening their lending. GLENN HUNT
by Matthew Cranston Larry Schlesinger

The tightening of credit by big banks for apartment developers will prevent an oversupply in the residential market, which might have ended with crashing values, Deloitte Australia's real estate practice says.

The Commonwealth Bank of Australia has tightened its lending to apartment developers as new capital requirements could increase the failure of buyers to finalise off-the-plan apartments, raising the riskiness of such projects.

However, Deloitte's national director for real estate James Walsh said tightening by banks would help ensure the health of the development sector.

"The tightening of credit for development funding to less-experienced development groups will be a positive for the residential development market by limiting supply and lengthening the cycle," Mr Walsh said.

"We continue to see increased appetite from family offices, as well as domestic and offshore funds seeking to partner with quality developers of residential projects and provide the additional capital needed to offset lower lending ratio's being provided by the major banks."

Developers have shown some concern that the tightening by banks, driven by new rules on investor lending from the Australian Prudential and Regulatory Authority, could halt projects.

Mosaic Property Group's managing director Brook Monahan said from an off-the-plan apartment developer's perspective the greatest concern now was around settlement and valuation risk.

"[This] can manifest itself in many different ways, including a decrease in consumer market sentiment and projects simply not proceeding," Mr Monahan said.

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"From a settlement risk perspective it will now become critical that developers have been appropriately qualifying their investment purchasers during the sales process to ensure they will have the financial capacity to settle their purchase.

"While time will ultimately convey the true impact of the recent APRA regulations, it would appear that now, more than ever, developers and financial institutions will definitely need to place a higher importance on quality investment purchasers."

Listed Malaysian developer Fajarbaru Group and Melbourne-based Beulah International received financial backing in August from Maybank, Malaysia's biggest bank, for their $77 million joint-venture Gardenhill apartment project in Doncaster in Melbourne's eastern suburbs.

Beulah International executive director Jiaheng Chan said he had met Australian banks and the pre-sales requirements from Maybank was not too dissimilar to the Australians.

"Gardenhill has achieved 80 per cent in apartment pre-sales, more than what was required," he said.

"We definitely have an advantage from a funding perspective but we are still a local developer and operate with a local perspective."

With Larry Schlesinger

Aug 5 2015 at 3:54 PM Updated Aug 5 2015 at 8:47 PM

Banks in new push into residential property

Major banks are offering refunds on lenders' mortgage insurance and other incentives to encourage lower-risk home buyers. Graham Tidy

by Duncan Hughes
Major banks, which have been clamping down on investors in residential property, are offering mortgage brokers a new range of incentives to encourage lower-risk residential home buyers.

Bank of Melbourne and St Georges Bank, which are part of the Westpac Group, are among those offering refunds on lenders' mortgage insurance, $2000 cash back for refinancing and fixed-rate decreases on owner-occupier home loans by up to 0.3 per cent.

"We remain focused on helping owner-occupiers," a spokesman for Bank of Melbourne claims in a letter to brokers advising of the new rates.

Chris Foster-Ramsay, managing director of Capital Home Loans, said: "As the lending landscape changes there will be more and more competition for the owner-occupier market."

A clamp-down on investment lending by the majors is creating some of the most competitive conditions for borrowers since the beginning of the global financial crisis in 2008, according to mortgage brokers and real estate agents.

Low documentation lenders, building societies and other small lenders are scrambling to build lending books and market share as major lenders' higher rates and tougher conditions push borrowers to look for alternatives, they claim.

Smaller lenders, such as Perth-based Bluebay Home Loans, which describes itself as an alternative to the majors, has written to brokers stating it will maintain a maximum loan-to-value ratio of 90 per cent and maintain competitive rates.

Other lenders, such as Liberty Financial, which has assets valued around $3.5 billion, claims it will take advantage of opportunities created by borrowers seeking an alternative as mainstream banks' tighten lending.

Some lenders offering cheaper rates and lower loan-to-value ratios fear pent-up demand for investment loans could trigger a flood of applications, overwhelming administrative systems and risking a breach of caps.

"Smaller lenders are likely to eventually exhaust their capacity to lend," added Tim Brown, chair of the Mortgage and Finance Association of Australia.

"It is only a matter of time before most will have to stop lending above loan-to-value ratios of 80 per cent," said Mr Brown about lender response to changing market conditions.

Jul 25 2015 at 12:15 AM Updated Jul 25 2015 at 3:47 AM
APRA bank loan changes put the brakes on property investors

The consensus among economists is that the housing boom has peaked, writes Larry Schlesinger.


Banks have turned the screws on property investors. Henry Zwartz


by Larry Schlesinger
The wheels might not have come off yet but the investor demand that has driven Australia's property boom is starting to wobble.

This week's announcement by the Australian Prudential Regulation Authority (APRA) that the big four banks and Macquarie Bank must hold more capital against their gargantuan mortgage books to provide a buffer against defaults will apply further pressure to housing growth. The banks are already increasing home loan rates to meet more expensive funding costs.

Combined with the blizzard of tougher lending policies already introduced by the banks this year, to slow down investor lending growth per bank to less than 10 per cent a year, the consensus among economists is that the housing boom has peaked.

Predictions from respected economic forecaster BIS Shrapnel that Australia will have built too many new homes by 2018 makes the picture a lot gloomier, especially for those looking for quick capital gains.

Property analysts say Sydney and Melbourne, where there has been the greatest acceleration in prices and where investors have dominated, will be hardest hit. House prices in Sydney have surged 20 per cent over the past year, and 10 per cent in Melbourne.

Brisbane, Adelaide, Hobart and Perth, where there has not been the same price growth, will not see the falls, analysts say. Darwin, hit by the slowdown in resources, has had little price growth this year. In Canberra, where house prices have increased by about 5 per cent over the 12 months to June, Domain senior economist Andrew Wilson expects more house buyer activity, although apartment prices are falling thanks to oversupply.

This is how much the banks have turned the screws on investors. All have reduced loan-to-value ratios (LVRs) on investor loans, with Westpac, the nation's biggest lenders to investors, slashing its LVRs earlier this month from 95 per cent to 80 per cent (meaning a $200,000 deposit if you're buying a $1 million dollar home). Investors must be able to service loans at higher than 7 per cent (a 2 per cent buffer), pushing more to the sidelines or requiring them to downsize their buying ambitions.

Banks have also removed mortgage discounts from investor loans and have cut back on offering riskier products such as interest-only loans. Some, such as ANZ Banking Group, have removed the cash-flow benefit of negative gearing from investment lending policies and both Commonwealth Bank of Australia and Westpac have reduced the proportion of rental income they will consider when assessing mortgage serviceability.

"Confidence from investors in markets like Sydney is going to start to wane," says CoreLogic RP Data's head of research, Tim Lawless. "There is a growing acceptance that the market has run its course."

WEAKER GROWTH

Logically, fewer investors out there means less competition for property and less pressure on house price growth, which, according to economists including Paul Bloxham of HSBC and Shane Oliver of AMP Capital, has already peaked.

Both economists anticipate weaker levels of growth for the remainder of the year and into 2016, with expectations that prices will start falling from 2017 when the Reserve Bank of Australia could start raising rates again.

"If mortgage rates rise as a consequence of more stringent capital requirements on housing lending, this is likely to be a drag on housing activity because mortgage rates are still the key driver of activity in the established housing market," Bloxham says.

Oliver, who expects prices to fall by between 5 per cent and 10 per cent in 2017, says it's unclear yet what impact the APRA measures will have on the housing market. But he says the RBA and APRA both want to see a slowdown in lending to investors and more heat coming out of this market.

What the RBA does not want to see, Oliver says, is rising rates for existing mum and dad borrowers. The impact of this would go beyond the housing market into sectors such as retail spending. Were this to happen, both Oliver and Bloxham believe the RBA could cut rates to dampen the effects. "It's a 50-50 call whether there's another rate cut," Oliver says.

The latest data from the country's biggest mortgage broker, Australian Finance Group, which shows investors in NSW quitting the market in droves, suggests the cumulative impact of the changes is having the desired effect.

Its June-quarter figures show that the proportion of investor loans in NSW, consistently at about 50 per cent of all lending over the past 12 months, fell to 42 per cent over a three-month period. This is likely to affect investor buying across the country.

"Investor lending has returned to levels we are more used to," AFG chief financial officer David Bailey says.

Depending on how much lenders increase rates due to the APRA changes, Bailey says it may bounce some people out of the market. "It's very early days, but initial discussions with some lenders suggest increases of between 10 and 20 basis points."

Other analysts, such as CLSA's Brian Johnson, believe the rate rises could be higher but the clear message is that they are going up.

ANZ and CBA have already moved, announcing they will lift interest rates on a range of fixed and variable investment loans by between 10 and 40 basis points from August to ensure investment lending growth does not exceed APRA's ceiling of 10 per cent.

But both banks will also cut rates by between 30 and 40 basis points on fixed-rate loans for owner-occupiers, with ANZ's Australian chief executive, Mike Whelan, telling Fairfax Media there will be a heightened focus on "owner-occupier and first home buyers in the country".

PERIOD OF UNCERTAINTY

Gerald Foley, managing director of National Mortgage Brokers, says first-time investors without the equity and cash flow to satisfy the banks' new requirements will be the ones most affected.

More broadly, the changes are creating an unusual period of uncertainty between lenders and borrowers, particularly for investors who have employed a particular investment strategy.

"In the short term it won't have a significant impact, but if there is a sustained period of continued tightening it will have an impact. It will take confidence out of the marketplace," Foley says.

The winners out of all this, he says, could be first home buyers. "With some investors sitting on the sidelines, there may be better opportunities for first home buyers to acquire property, which is potentially part of the impact regulators want to see," he says. "Banks still have money to lend and are offering sweeteners on the owner-occupier side."

CoreLogic RP Data's Tim Lawless believes there will be a correction, "but it won't be of the magnitude that some commentators are forecasting – 20 to 30 per cent. It will be a gradual moderation."

But certain pockets of the market are at greater risk of correction, he adds. "When you look at areas of the market most susceptible, it's the investment markets where there is a lot of new supply – the inner-city apartment markets and the outer suburban greenfield housing estates."

Among the inner-city investor-dominated apartment markets, Lawless points to Melbourne, where there is much greater geographic concentration around the central business district, Docklands and Southbank.

"The risk is much less in Sydney though, because dwelling approvals for apartments are not as high as Melbourne and the geographic distribution is much broader, spreading out to places like Parramatta, Lane Cove and Chatswood."

Others, such as veteran mortgage market analyst Martin North, expect a "slightly negative impact on mortgage pricing" from the APRA changes, but do not believe there will be much impact on the broader housing market.

"House prices are a factor of supply and demand," North says. "There is rising supply, but also strong demand. Compared to other asset classes housing is doing a lot better, plus there are all the tax concessions like negative gearing and the ability to offset capital gains.

"The supply of investment loans will still be there. Remember that not all banks are growing their investment lending at 10 per cent. Some will see it as a target. And there's also the opportunity for the non-banking sector to fill the gap if the majors disappear from the radar."

Foley says this is already happening: "We are seeing increasing appetite in the broker market for specialist lenders like Pepper, Liberty and LaTrobe who can better tailor deals in the current market."

[greengiraffe]

Aug 7 2015 at 12:28 PM Updated 19 mins ago

Investment property lending reaches record $153.5b in year to June

Frenzied: lending for investment in housing rose to a record in the year to June, but the pace is already slowing.

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by Michael Bleby
Australian banks lent a record $153.5 billion to investors in the year to June as cheap debt and the fast-rising housing market drew boosted demand for credit.

Investment loans rose nearly 25 per cent on the 2014 figure of $123.3bn, Australian Bureau of Statistics figures on Friday showed.

There were signs, however, that growth in lending has peaked.

Property investor lending eased back for a second month in June, to $13.5bn from $13.6bn in May, pulling the monthly total further back from the April record of $14.1bn.

A slow build: lending to first home buyers rose at its slowest pace in over 3 years in the year to June.
A slow build: lending to first home buyers rose at its slowest pace in over 3 years in the year to June. Rob Homer
On an annualised basis, the June figure also showed a slowdown, with the increase of 22.5 per cent from June a year earlier, also down from the 29.7 per cent growth rate posted in April.

The figures sparked a quick response from the lending industry, who warned of dangers from regulator APRA-led push to reign in investor lending growth.

"A lot of lenders are making a lot of changes at the moment, and this will no doubt serve to keep some potential investors on the sidelines," said John Flavell, the chief executive of broker Mortgage Choice. "Unfortunately, the people these changes are affecting are the mum-and-dad investors and first time buyers who are choosing to purchase investment properties before owner-occupied properties."

While signs of a slowdown will be welcome news to regulators, there is little sign yet that first-home buyers are finding it easier.

In the year to June, the value of loans to first home buyers totalled $331.1bn, up just 2.2 per cent from the previous year. It was the slowest annualised rate of growth in first-home buyer loans since February 2012, when the total fell almost 1 per cent.

The full effect of tighter curbs on investor credit will still take some time to show up in the official figures, ANZ economists Daniel Gradwell and Justin Fabo said in a research note published after the figures.

"The full impact of these and other changes to dampen investor housing lending are likely to take some time to flow through," they said. "Although investor demand is expected to remain solid, APRA's 10 per cent growth 'speed limit' on investor housing lending should see only modest growth in investor housing loan approvals over the second half of the year."

Earlier this week Morgan Stanley also said there was a risk that the investment lending curbs, along with separate moves to curb residential investment by wealthy foreigners through the Significant Investor Visa scheme could be 'too successful' and could crimp the housing market.

Aug 5 2015 at 3:54 PM Updated Aug 5 2015 at 8:47 PM

Banks in new push into residential property

Major banks are offering refunds on lenders' mortgage insurance and other incentives to encourage lower-risk home buyers. Graham Tidy

by Duncan Hughes
Major banks, which have been clamping down on investors in residential property, are offering mortgage brokers a new range of incentives to encourage lower-risk residential home buyers.

Bank of Melbourne and St Georges Bank, which are part of the Westpac Group, are among those offering refunds on lenders' mortgage insurance, $2000 cash back for refinancing and fixed-rate decreases on owner-occupier home loans by up to 0.3 per cent.

"We remain focused on helping owner-occupiers," a spokesman for Bank of Melbourne claims in a letter to brokers advising of the new rates.

Chris Foster-Ramsay, managing director of Capital Home Loans, said: "As the lending landscape changes there will be more and more competition for the owner-occupier market."

A clamp-down on investment lending by the majors is creating some of the most competitive conditions for borrowers since the beginning of the global financial crisis in 2008, according to mortgage brokers and real estate agents.

Low documentation lenders, building societies and other small lenders are scrambling to build lending books and market share as major lenders' higher rates and tougher conditions push borrowers to look for alternatives, they claim.

Smaller lenders, such as Perth-based Bluebay Home Loans, which describes itself as an alternative to the majors, has written to brokers stating it will maintain a maximum loan-to-value ratio of 90 per cent and maintain competitive rates.

Other lenders, such as Liberty Financial, which has assets valued around $3.5 billion, claims it will take advantage of opportunities created by borrowers seeking an alternative as mainstream banks' tighten lending.

Some lenders offering cheaper rates and lower loan-to-value ratios fear pent-up demand for investment loans could trigger a flood of applications, overwhelming administrative systems and risking a breach of caps.

"Smaller lenders are likely to eventually exhaust their capacity to lend," added Tim Brown, chair of the Mortgage and Finance Association of Australia.

"It is only a matter of time before most will have to stop lending above loan-to-value ratios of 80 per cent," said Mr Brown about lender response to changing market conditions.

Jul 25 2015 at 12:15 AM Updated Jul 25 2015 at 3:47 AM
APRA bank loan changes put the brakes on property investors

The consensus among economists is that the housing boom has peaked, writes Larry Schlesinger.


Banks have turned the screws on property investors. Henry Zwartz


by Larry Schlesinger
The wheels might not have come off yet but the investor demand that has driven Australia's property boom is starting to wobble.

This week's announcement by the Australian Prudential Regulation Authority (APRA) that the big four banks and Macquarie Bank must hold more capital against their gargantuan mortgage books to provide a buffer against defaults will apply further pressure to housing growth. The banks are already increasing home loan rates to meet more expensive funding costs.

Combined with the blizzard of tougher lending policies already introduced by the banks this year, to slow down investor lending growth per bank to less than 10 per cent a year, the consensus among economists is that the housing boom has peaked.

Predictions from respected economic forecaster BIS Shrapnel that Australia will have built too many new homes by 2018 makes the picture a lot gloomier, especially for those looking for quick capital gains.

Property analysts say Sydney and Melbourne, where there has been the greatest acceleration in prices and where investors have dominated, will be hardest hit. House prices in Sydney have surged 20 per cent over the past year, and 10 per cent in Melbourne.

Brisbane, Adelaide, Hobart and Perth, where there has not been the same price growth, will not see the falls, analysts say. Darwin, hit by the slowdown in resources, has had little price growth this year. In Canberra, where house prices have increased by about 5 per cent over the 12 months to June, Domain senior economist Andrew Wilson expects more house buyer activity, although apartment prices are falling thanks to oversupply.

This is how much the banks have turned the screws on investors. All have reduced loan-to-value ratios (LVRs) on investor loans, with Westpac, the nation's biggest lenders to investors, slashing its LVRs earlier this month from 95 per cent to 80 per cent (meaning a $200,000 deposit if you're buying a $1 million dollar home). Investors must be able to service loans at higher than 7 per cent (a 2 per cent buffer), pushing more to the sidelines or requiring them to downsize their buying ambitions.

Banks have also removed mortgage discounts from investor loans and have cut back on offering riskier products such as interest-only loans. Some, such as ANZ Banking Group, have removed the cash-flow benefit of negative gearing from investment lending policies and both Commonwealth Bank of Australia and Westpac have reduced the proportion of rental income they will consider when assessing mortgage serviceability.

"Confidence from investors in markets like Sydney is going to start to wane," says CoreLogic RP Data's head of research, Tim Lawless. "There is a growing acceptance that the market has run its course."

WEAKER GROWTH

Logically, fewer investors out there means less competition for property and less pressure on house price growth, which, according to economists including Paul Bloxham of HSBC and Shane Oliver of AMP Capital, has already peaked.

Both economists anticipate weaker levels of growth for the remainder of the year and into 2016, with expectations that prices will start falling from 2017 when the Reserve Bank of Australia could start raising rates again.

"If mortgage rates rise as a consequence of more stringent capital requirements on housing lending, this is likely to be a drag on housing activity because mortgage rates are still the key driver of activity in the established housing market," Bloxham says.

Oliver, who expects prices to fall by between 5 per cent and 10 per cent in 2017, says it's unclear yet what impact the APRA measures will have on the housing market. But he says the RBA and APRA both want to see a slowdown in lending to investors and more heat coming out of this market.

What the RBA does not want to see, Oliver says, is rising rates for existing mum and dad borrowers. The impact of this would go beyond the housing market into sectors such as retail spending. Were this to happen, both Oliver and Bloxham believe the RBA could cut rates to dampen the effects. "It's a 50-50 call whether there's another rate cut," Oliver says.

The latest data from the country's biggest mortgage broker, Australian Finance Group, which shows investors in NSW quitting the market in droves, suggests the cumulative impact of the changes is having the desired effect.

Its June-quarter figures show that the proportion of investor loans in NSW, consistently at about 50 per cent of all lending over the past 12 months, fell to 42 per cent over a three-month period. This is likely to affect investor buying across the country.

"Investor lending has returned to levels we are more used to," AFG chief financial officer David Bailey says.

Depending on how much lenders increase rates due to the APRA changes, Bailey says it may bounce some people out of the market. "It's very early days, but initial discussions with some lenders suggest increases of between 10 and 20 basis points."

Other analysts, such as CLSA's Brian Johnson, believe the rate rises could be higher but the clear message is that they are going up.

ANZ and CBA have already moved, announcing they will lift interest rates on a range of fixed and variable investment loans by between 10 and 40 basis points from August to ensure investment lending growth does not exceed APRA's ceiling of 10 per cent.

But both banks will also cut rates by between 30 and 40 basis points on fixed-rate loans for owner-occupiers, with ANZ's Australian chief executive, Mike Whelan, telling Fairfax Media there will be a heightened focus on "owner-occupier and first home buyers in the country".

PERIOD OF UNCERTAINTY

Gerald Foley, managing director of National Mortgage Brokers, says first-time investors without the equity and cash flow to satisfy the banks' new requirements will be the ones most affected.

More broadly, the changes are creating an unusual period of uncertainty between lenders and borrowers, particularly for investors who have employed a particular investment strategy.

"In the short term it won't have a significant impact, but if there is a sustained period of continued tightening it will have an impact. It will take confidence out of the marketplace," Foley says.

The winners out of all this, he says, could be first home buyers. "With some investors sitting on the sidelines, there may be better opportunities for first home buyers to acquire property, which is potentially part of the impact regulators want to see," he says. "Banks still have money to lend and are offering sweeteners on the owner-occupier side."

CoreLogic RP Data's Tim Lawless believes there will be a correction, "but it won't be of the magnitude that some commentators are forecasting – 20 to 30 per cent. It will be a gradual moderation."

But certain pockets of the market are at greater risk of correction, he adds. "When you look at areas of the market most susceptible, it's the investment markets where there is a lot of new supply – the inner-city apartment markets and the outer suburban greenfield housing estates."

Among the inner-city investor-dominated apartment markets, Lawless points to Melbourne, where there is much greater geographic concentration around the central business district, Docklands and Southbank.

"The risk is much less in Sydney though, because dwelling approvals for apartments are not as high as Melbourne and the geographic distribution is much broader, spreading out to places like Parramatta, Lane Cove and Chatswood."

Others, such as veteran mortgage market analyst Martin North, expect a "slightly negative impact on mortgage pricing" from the APRA changes, but do not believe there will be much impact on the broader housing market.

"House prices are a factor of supply and demand," North says. "There is rising supply, but also strong demand. Compared to other asset classes housing is doing a lot better, plus there are all the tax concessions like negative gearing and the ability to offset capital gains.

"The supply of investment loans will still be there. Remember that not all banks are growing their investment lending at 10 per cent. Some will see it as a target. And there's also the opportunity for the non-banking sector to fill the gap if the majors disappear from the radar."

Foley says this is already happening: "We are seeing increasing appetite in the broker market for specialist lenders like Pepper, Liberty and LaTrobe who can better tailor deals in the current market."

[greengiraffe]

Aug 6 2015 at 6:11 PM Updated Aug 7 2015 at 11:16 AM

The billionaire who bought Australia's most expensive home

by Su-Lin Tan
Chinese-Australian billionaire Chau Chak Wing paid about $70 million for La Mer, James and Erica Packer's Vaucluse six-storey mansion, beating the $52 million paid in 2013 for another house in Sydney's eastern suburbs, the Point Piper mansion Altona, and setting an Australian record.

Real estate agents said Chau has picked up one the last few very expensive mansions for sale in Sydney.

"All the top end are gone. There is still the 7000-square-metre owned by the Fairfax family, but there's not a lot out there, " LJ Hooker's Bill Malouf said.

Chau is a property developer in Guangzhou, the capital of Guangdong, the Cantonese-speaking part of China. His directorships in Australian companies lists him as a resident of Hong Kong. He is a citizen of Australia.


Chau Chak Wing, with his son Eric: Australia ... the more you taste it, the more you will fall in love with it. James Brickwood
Forbes China Rich List 2014 ranked him at number 220 with a net worth of $US1 billion ($1.36 billion).

Chau spoke very little at the unveiling of the Frank Gehry-designed wing for the University of Technology Sydney named after him in acknowledgment of the $20 million he donated for its construction.

His son studied at the university, where he has also given $5 million for student scholarships. His daughter, former Bob Carr staffer Winky Chow, edits his Chinese-language newspaper News Express Daily, which is circulated in Sydney and Guangzhou. His wife lives in Sydney in a mansion in Sydney's Pulpit Point.

His flagship company, the Kingold Group based in China, has a diverse range of interests, including hospitality, pharmaceuticals, eco-tourism and media.

But it was his other Australian companies which made headwinds in the political arena.

In 2006-07 and 2007-08, just before the 2007 federal election, Kingold, HK Kingson Investment and a relative's company, Chun Yip Trading, donated about $2 million to both the Labor party and the Coalition, making him one of Australia's biggest political donors.

John Howard, Bob Hawke, Kevin Rudd and Wayne Swan have all been guests at Chau's expansive Conghua estate, north of Guangzhou, which includes a 6000-square-metre museum with 20,000 Chinese antiquities, a 27-hole golf course and a temple rumoured to hold the cremated remains of Buddha.

He kept a low profile after news of his donations broke in 2009, but in 2013-14 he donated about $900,000 to both Labor and the Coalition through Australia Kingold Investment Development Co.

While little is known about Chau – he received his honorary doctorate in humane letters in 2004 from Kekua College in upstate New York and gives few interviews – he has declared his love for Australian wine.

"Living in Australia [is] just like tasting the Australian wine: the more you taste it, the more you will fall in love with it," he told UTS during the opening of the Gehry wing.

James Packer’s Vaucluse mansion sells for record $60m
THE AUSTRALIAN AUGUST 06, 2015 12:09AM

James Packer's Vaucluse home has been sold for a record price. Source: News Limited

Billionaire James Packer has sold his sprawling Vaucluse mansion for more than $60 million, the highest price ever paid for a property in Australia.

La Mer, the six-storey compound on Wentworth Road sold to an Australian buyer through exclusive property agents Christie’s International, the Daily Telegraph reports.

While the sale details remained confidential, sources confirmed contracts had been exchanged, and said that based on property valuations, the sale price may emerge as closer to $80m.

Because the buyer reportedly is an Australian, it will not be subject to Foreign Investment Review Board review.

The sale easily tops the previous Sydney record of $52m paid in 2013 for the Point Piper mansion Altona.

Mr Packer will split the proceeds with his former wife Erica Baxter. The couple, with their three children, shared the mansion for just a few months before the two separated in 2013 and subsequently divorced.

However, given the huge investment Mr Packer poured into the property, the sale price might not represent a big gain.

The mansion compound features a generous entertaining space and family quarters with six bedrooms, as well as a glassed-in winter garden, a wellness room, buy, 20-seat cinema, a lift and a 20-car soundproofed garage.

Set on 3345 sq m, it boasts views across the harbour to the Sydney Harbour Bridge and the Opera House.

The Packers bought the 1972 Guilford Bell-designed house in 2009-2010, paying $30 million in land alone, before spending millions on extensive renovations and extensions.