Australia Property

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Treasurer orders sale of six homes

Joe Hockey has ordered the sale of six residential properties owned by foreign nationals.

The owners live in four countries, with one investor having two in a Perth suburb, the treasurer told reporters in Sydney on Saturday.

Some purchased the properties with Foreign Investment Review Board approval but their circumstances have changed, while others have simply broken the rules, he said.

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Aug 7 2015 at 4:37 PM Updated Aug 7 2015 at 7:26 PM

Flood of houses and apartments for sale worries experts

There is growing nervousness about the impact of rising rates charged by banks. Andy Dean
by Duncan Hughes

A spike in the number of houses and apartments for sale in Melbourne and Sydney could signal concerns among sellers that prices are nearing their peak, according to market specialists.

New listings of apartments and houses in Sydney are 24 per cent higher than the same time last year and 19 per cent higher in Melbourne, driven by sellers trying to capitalise on strong demand rather than wait for spring, the traditional peak sales time.

Sales in both markets remain strong but there is growing nervousness about the impact of rising rates charged by banks. Clearance rates in Sydney and Melbourne have been slipping in recent weeks, although are historically high.

"The market might not be as strong in a few months' time and there will be more stock to compete with as spring numbers rise," said Tim Lawless head of research for CoreLogic RP Data, about the surge in property listings. "Whether this new stock will be absorbed as fast as it has over the past years is the million dollar question," he said.

"There is a bit of nervousness building up," said Andrew Fawell​, director of the Beller Group, a diversified property company in residential, industrial and mainland Chinese markets.

The Reserve Bank, in the Statement on Monetary Policy released Friday, wrote that while "large price increases" had been recorded for detached houses in Sydney and Melbourne, the growth in apartment prices had been "noticeably slower" and the markets were "subdued" outside Sydney and Melbourne with some price declines.

The RBA also noted that rents inflation was easing as supply and vacancy increased across the nation.

Mortgage brokers expect banks to keep tightening lending to investors through higher interest rates and tougher credit assessments of applicants' capacity to pay off their loans. They have cut expected property yields for rental apartments from about 5 per cent to 3 per cent.

Mortgage brokers estimate about 90,000 apartments being constructed have been sold off the plan but are 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.

More than 40 per cent of off-the-plan apartments are worth less when they are paid off than when the buyer agreed the borrowing conditions and finalised the price with a developer, according to Greville Pabst​, chief executive of WBP Property Group.

Mr Pabst said off-the-plan buyers are facing a "double whammy" of apartment prices having fallen by an average of 20 per cent and banks demanding higher deposits.

"Measures taken by APRA [the banking regulator] are having an impact but it is too early to say how much of an impact," he said.

Housing in the $700,000 to $1.5 million range in Melbourne and Sydney is "resilient" but pressure could be growing on sellers wanting $3 million to $6 million, according to real estate agents.

House listings in the Perth and Darwin, which are reeling from over-supply and weak demand following the collapse of the resources boom, are up 22 and 17 per cent respectively.

Values and rents are falling, time on the market is increasing and vendor discounting rates are softening in both cities, according to analysis by RP Data.

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CBA to tighten lending for new homes
Date
August 10, 2015 - 10:08AM
Michael Bleby


Many developers have to pre-sell up to 50 per cent of all lots on a planned site before a bank will lend money needed to start earthworks and install services that make it developable for houses. Photo: Penny Stephens

Commonwealth Bank of Australia plans to curb loans to new housing developments, a decision that will hit first-home buyers and investors in outer suburbs.

A CBA presentation to brokers, marked "confidential", outlines a plan to delay the approval of finance for buyers of lots until the land is ready for development and all preliminary work such as roads has been completed.

Developers said the change will limit land development, putting further pressure on already-surging prices by limiting the supply of houses.

Danni Addison, head of the Victorian Urban Development Institute, says the CBA's plan the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences.
Danni Addison, head of the Victorian Urban Development Institute, says the CBA's plan the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences. Photo: Eddie Jim
This policy will restrict pre-sales of houses. Many developers have to pre-sell up to 50 per cent of all lots on a planned site before a bank will lend money needed to start earthworks and install water, sewerage and electricity services that make it developable for houses.

The decision, which is expected to become CBA policy in the next few weeks, will increase the pressure on developers already struggling with slow land release and title processes. It could slash development and send prices up, developers said.

"If it's adopted by all banks, it will make it more difficult for all developers to fund construction of land for first home buyers and second home buyers," said David Payes, the managing director of developer Intrapac Projects and president of lobby group Urban Development Institute of Australia, Victoria. "We need to supply land to keep housing at affordable prices."

Unlike tougher lending policies reported last week, the bank's latest move would not hit apartments but housing developments in the growth corridors of Sydney, Melbourne and Brisbane. New detached home sales rose last financial year to 73,507, a four-year high and more than four times the number of units and apartments sold.

New housing developments carry their own risks, however, and the banks have been burnt by falling land values before. Land values fell 5 per cent in the first half of 2009 after new dwelling commencements dropped 17 per cent from 159,730 to 132,580 the previous year, Housing Industry Association figures show. The tightening by the Commonwealth Bank may be an attempt to pre-empt any loss in land value caused by the building boom.

The change won't just target first home buyers. Investors account for as much as 45 per cent of buyers in new housing developments. While it will constrain supply, the change is consistent with reductions in lending to apartment investors.

'Natural part of cycle'
"This is just a natural part of the cycle," said Rod Fehring, the executive general manager for residential at developer Frasers Australand, one of the country's largest. "It's prudent for banks to be careful of their exposures to different segments of the market."

Many in the market are concerned. "There is no justification for cutting off the credit tap for new residential development," said Harley Dale, HIA's chief economist. "It would be very concerning at this point in time if it became more difficult for people to get into a new home, which is the end issue here."

The move would only worsen a situation in which house prices are already rising faster than incomes, Dr Dale said.

"There are going to be fewer people that can get into a new home in greenfields developments than would otherwise be the case, which does nothing to improve housing affordability," he said.

The bank said the move was simply part of a constant review of its loan policies.

"In line with our responsible lending commitments, we constantly review and monitor our lending standards to ensure we are maintaining our prudent lending standards and meeting our customers' financial needs," the bank, the country's largest mortgage lender, said in a statement.

Crucial step
Under the new policy it will only accept valuations on lots – a crucial step in the mortgage approval process – after an external valuer has physically examined the site.

"We believe a more accurate measurement in getting a valuation on unregistered land at an appropriate time should instead be based on the valuer having access to the estate and being able to physically identify the allotment," it said in the presentation.

Previously, the bank would commit to a loan with an assessment based on the development plan, as early as 12 months before a lot was accessible.

But developers said the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences.

"This action directly targets the production of new housing stock; jobs, supply, prices and therefore the broader economy will feel the effects of the bank's action," UDIA Victoria chief executive Danni Addison said.

"It is simply neither justifiable nor understandable and could very well lead to a significant contraction in supply and a reduction in new housing options for buyers and renters."

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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Aug 10 2015 at 6:14 PM Updated 59 mins ago

Foreign investor crackdown 'a farce', says top Sydney agent
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Robert Simeon, director of Richardson & Wrench Mosman & Neutral Bay, estimates Chinese buyers account for almost one in five sales on Sydney's lower north shore.


by Larry Schlesinger
Veteran Mosman real estate agent Robert Simeon has called the latest government announcement of a crackdown on foreign investors a "farce and a complete waste of time", adding the number of illegal purchases is bigger than ever.

"It's nothing more than a PR stunt and a distraction. It's been done for feel-good cuddles," Mr Simeon said in response to federal Treasurer Joe Hockey's latest announcement that foreign owners of six properties in Sydney, Perth and Brisbane had 12 months to sell their homes, with another 462 cases under investigation.

These forced sales included a home in Mosman, one of Sydney's most expensive suburbs. Mr Simeon, director at real estate agent Richardson & Wrench Mosman & Neutral Bay, estimated Chinese buyers accounted for almost one in five sales on the lower north shore.

"[Illegal sales] are greater than ever. It's not a question of how many people are prosecuted, but how many are using loopholes to buy illegally," he said.

A large percentage of foreign buyers were simply transferring property into the names of Australian residents "for just a $50 fee" to get around the rules, he said.

"If you took illegal foreign purchasers out of market, the market would not resemble anything near what it is today. There's tens of thousands of illegal purchases."

Sydney buyers' agent Pete Wargent said the latest announcement by the Treasurer would have no impact on buyers who purchased property illegally.

"It's more a case of people coming forward than being exposed. The FIRB (Foreign Investment Review Board) does not have the capacity to do very much and there's not much appetite to stop foreign capital coming into the country," he said.

SIGNIFICANT WEALTH

Mr Wargent said many of the Chinese buyers he dealt with had significant wealth and often paid in cash, with the money transferred into the country in tranches.

In his weekend announcement, Mr Hockey said all five investors forced to divest their properties had come forward voluntarily to take advantage of an amnesty, which applies until November 30. From December 1, foreign buyers who break FIRB rules face hefty fines, civil penalties, forfeiture of capital gains and jail sentences.

"Time is running out for foreign investors to voluntarily come forward if they have illegally purchased existing residential real estate," Mr Hockey said.

Malcolm Gunning, president of the Real Estate Institute of NSW, said anecdotal evidence from the institute's international chapter was that the crackdown was changing buyer behaviour, with foreign purchasers now seeking FIRB approval before buying – as is required – rather than buying first and then seeking FIRB permission.

As a result, Mr Gunning said, there had been a pullback from those foreign buyers "seeking easy entrance to the market".

In Victoria, on top of the federal crackdown on illegal purchases of real estate, foreign buyers have been required since July 1 to pay an extra 3 per cent in stamp duty on residential purchases.

Real Estate Institute of Victoria chief executive Enzo Raimondo said anecdotal evidence indicated foreign investors were still very active in parts of Melbourne, including the inner east and Bayside suburbs.

"The rules are fairly simple. But if buyers want to skirt them they will find a way," he said.

Treasurer orders sale of six homes

Joe Hockey has ordered the sale of six residential properties owned by foreign nationals.

The owners live in four countries, with one investor having two in a Perth suburb, the treasurer told reporters in Sydney on Saturday.

Some purchased the properties with Foreign Investment Review Board approval but their circumstances have changed, while others have simply broken the rules, he said.

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OPINION Aug 12 2015 at 7:15 PM Updated Aug 12 2015 at 9:23 PM

Wobbles in equity markets make real estate more attractive

Small investors in particular need to be wary of investments that look good now but will not look so good when tenants move out, or debt costs rise. Erin Jonasson

by Robert Harley
The bad news for equities is good news for property – at least in the short term.

The surprise downgrades to supposed blue chips, and the wobbles of the small investor favourites like the banks, reinforce the seeming security of today's property, despite the low return. In the long term, property is not immune to the weaknesses in the broader economy.

Corporate troubles show up in weaker underlying demand for commercial and residential property. And the selloff in the banks foreshadows tighter lending to real estate.

Small investors in particular need to be wary of investments that look good now but will not look so good when tenants move out, or debt costs rise.

Morgan Stanley analyst, John Lee, noted the low risk of earnings downgrades among the REITS.
Morgan Stanley analyst, John Lee, noted the low risk of earnings downgrades among the REITS.
But at the moment the real estate investment trusts (REITs), and in fact most forms of commercial property investment, are having their day in the sun.

DEXUS Property Group chief executive Darren Steinberg told me on Wednesday that the REITs would show "a really consistent performance" which highlights their investment attraction, particularly to those heading to retirement.

"The distributions, critical to small investors, have already been fully disclosed. All the REITs in the ASX bar one – a small REIT caught with an industrial vacancy in Queensland – are delivering on target to the investors.

The response is reflected in the pricing. Over the past three months, as the broader ASX 200 lost 5.9 per cent, the REITs lost only 0.3 per cent. Over the month the REITs are in positive territory unlike the broader equities.

Morgan Stanley analyst, John Lee, noted the low risk of earnings downgrades among the REITS.

"Our view is earnings will fall in line with guidance, albeit toward the top end if a guidance range has been provided, as office and retail fundamentals have improved steadily and residential conditions have remained buoyant since February," he wrote.

And he is positive on the earnings outlook for financial year 2016 though he notes that it will be difficult to for 2016 guidance to exceed consensus estimates, currently around aiming for an increase of around 5.5 per cent.

"FY16 guidance could be a case of 'meets equals a beat'," he wrote reflecting a low return world where delivering promised return is valued.

Lee does see clouds. The interest cost reductions are coming to an end, though DEXUS has forecast that its cost of debt will drop again in 2016. The velocity of housing price growth and turnover will likely slow and, here is a wild card, could there be a credit squeeze? Rising capital requirements will no doubt squeeze corporate lending margins, and the ol' "let's break a swap and rebase our debt costs", may no longer be so lucrative.

At the same time Lee, like most sees further upside for values, and thus to Net Tangible Asset backing and Net Asset Value, based on a sales like the Investa and GIC portfolios and, as Steinberg noted, further sales to come.

In fact one analyst quizzed DEXUS about its plans for revaluation, wondering whether the directors were comfortable trading at the current valuations. Steinberg draws a parallel between London and Sydney commercial property. In the UK, cap rates fell to 3-4 per cent, followed by strong growth in income.

He thinks the tightening in yields, with consequent rise in prices in the Sydney and Melbourne CBDs will be followed by increased income to owners. Today's graph reflects the view that vacancy will rise in the Sydney CBD next year as new towers are opened.

rharley@afr.com.au

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Property investors find home ownership an empty dream
THE AUSTRALIAN AUGUST 15, 2015 12:00AM

Samantha Hutchinson

Property Writer

Nurse Annabel Boyers, at home with Harry, found it tough to get a tenant when she bought an investment property more than three months ago. Picture: Britta Campion Source: News Corp Australia

Annabel Boyers has a message for young property investors.

“Making it work isn’t as easy as you think,” the 27-year old nurse says from the backyard of her rental property in Sydney’s Bondi.

She can talk. She learned the hard way when it took more than three months for her and her partner to find a new tenant for their two-bedroom investment apartment in inner-city Redfern.

“It was in an award-winning building in a really desirable loca­tion but after two months we’d dropped the rent twice, and we still didn’t have anyone,” she said.

Property executives argue Ms Boyers’s case is increasingly common as first-home buyers resort to property investment to get their foot on the property ladder, boosting the number of rental properties coming on to the market when apartment supply is surging.

Research firm Digital Finance Analytics estimated in June that more than a third of first-home buyers in May were investors rather than owner-occupiers, with the numbers rising from neglig­ible levels three years ago, as low interest rates fuelled sharp increas­es in house prices.

Ms Boyers believes she fits into this category.

“There are a lot of people like me who see the only way of buying into the market is through an investme­nt property ... but if that sector is going gangbusters, then there’s a lot of competition for tenants,” she said.

Property executives argue that tenants are fortunate that rising vacancies have given them leverage with landlords, and it could be affecting a new market demographic that can least afford it.

Sydney’s vacancy rate of 2.2 per cent is above its historical average, while Melbourne’s inner-city vacancy rate is hovering at about 2.9 per cent.

“They might sound like they are in equilibrium, or close to equil­ibrium, where they are but the trend is for rising vacancies, and that’s when you see tenants being able to negotiate lower rents and owners feeling as if they’re struggling,” SQM Research head Louis Christopher said.

“And we’re likely to see the trend moving up ... there’s more supply coming and it means that rents are falling in every city.”

Apartment supply in NSW and Victoria reached a record in the three months to March, according to Housing Industry Association economist Geordan Murray, with more than 61,900 under construction in NSW and about 49,450 in Victoria.

For NSW, this equates to a level of activity 114 per cent higher than at the beginning of 2012.

For Victoria, this equates to a level 29 per cent higher than at the beginning of 2012.

Economist Harley Dale agreed. “I’m not surprised to hear investors are struggling to find tenants,” he said.

“We’ve seen so much supply, but there is more supply to come through ... it’s a reasonable comment to say you’ll continue to see downward pressure on rents and vacancy rates will get higher from here.”

The problem is predominantly confined to the inner city where the bulk of newly built apartment stock is located, according to Mr Christopher.

But outer ring areas are enjoying stiffer rental conditions. “More affluent areas have trad­itionally experienced a higher rate of vacancy because very few people­ can afford to live there,” he said. “Whereas you appeal to a higher catchment with something more affordably priced a bit further­ out.”

Liverpool in Sydney’s western suburbs enjoys a tight vacancy rate of just 1.7 per cent. Sutherland Shire, more than 20km from Sydney’s CBD, has 1.6 per cent.

The same applies in Melbourne, where outer-ring areas have vacancy rates up to 1 per cent lower than inner city areas.

Paul Nugent, a Melbourne-based buyers agent, is advising property investor clients to drop their rents or to make simple upgrad­es to apartments in a bid to get a tenant in the door without enduring a lengthy wait.

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Aug 14 2015 at 5:45 PM Updated Aug 14 2015 at 5:45 PM
Yuan devaluation won't stop Chinese investments in Australian property

China shocked global markets on Tuesday by devaluing its currency after a run of poor economic data Reuters


by Su-Lin Tan
The unexpected devaluatation of the Chinese currency this week could drive an increase in the amount of money being invested in Australian property, industry experts believe.

While global markets recoiled in shock from the move by the People's Bank of China on Tuesday, property experts said that contrary to some forecasts the move would work in Australia's favour.

"I think it would start a new direction and it's going to bring more money out of China and offshore," Knight Frank's head of Asian markets Dominic Ong said.

"The Chinese yuan has been pegged to the US for long time and now we see a strategic change. How far the yuan will keep going down, we don't know. So the Chinese want to act quickly to get their money out."

Colliers International's Asian division executive, David Sia had the same view.

"I expect this week's monetary policy changes in China to encourage more investment in international domiciles, like Australia, that have a history of high quality with lower volatility investment performance," he said.

On Friday, the three-day slide of the currency stopped at about 6.4003 a dollar after the PBoC said it would "intervene to prevent excessive swings". This was China's first major devaluation since 1994.

CBRE's managing director of capital markets investments, Ryan Johnson said the devaluation only had a small role to play in the bigger Chinese investment picture.

"We have devalued, they have devalued but more importantly the cost a square metre is still better in Sydney and Melbourne than it is in Shanghai and Beijing even with devaluation," he said.

"On a relative basis the Australian dollar has declined more, thereby resulting in a net positive economic effect as to purchase costs," ANZ's head of institutional property group, Eddie Law said.

"Most Chinese investors would perceive Australian property as being less likely to decline in value given comparable supply and demand metrics between tier one and two cities in China and Sydney and Melbourne. These are continuing safe havens for wealth preservation."

The "minor" yuan devaluation and Australia's "safe haven" status would keep funds flowing into the country, ANZ and Deloitte confirmed. Both companies were seeing a boom in business from China – better than 12 months ago.

Deloitte real estate partner, Damian Winterburn, who helped to close $300 to $400 million in deals for high net worth Chinese individuals and developers in the last quarter, said would not stop the "wall of Chinese capital from coming".

"This is a small blip… compare it with the 20 per cent devaluation it has had in the last 12 months," he said.

"We are still seeing hundreds of clients; at least one group a week coming out from China to invest in property and projects."

He added Foreign Investment Review Board limitations on sales to Chinese buyers had caused enough pent-up pressure from excess demand to override any negative effects from the yuan.

Property matchmaker, Juwai.com said "nothing has changed this week" in China.

"If China's currency keeps falling, that could be a boon for Australia, leading to greater commercial, development and residential investment from China. In that situation, the weak Aussie dollar would be like an open door, beckoning investors in. Meanwhile, the strong US dollar would make that country less affordable for Chinese buyers on a budget," co-CEO of Juwai.com Andrew Taylor said.

"In the unlikely event that the currency shift does affect consumer behaviour, Australia stands to benefit, as a relatively close destination than Europe or North America."

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Aug 14 2015 at 5:53 PM Updated Aug 14 2015 at 5:53 PM

Developer Lang Walker says there is a still a housing shortage

Lang Walker dismissed the idea of a "property bubble", particularly in Sydney, saying demand will swallow up any "real oversupply". Arsineh Houspian

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by Su-Lin Tan
Billionaire developer Lang Walker says the property markets in Sydney and Melbourne have not peaked.

The businessman, whose company Walker Corporation just won two of the largest projects of the landmark Parramatta Square $2 billion development, did not agree with the view put forward by real estate agent John McGrath this week that house price rises in the two main Australian cities were coming to a close.

"He's a real estate agent, not a developer," Mr Walker said at a Property Council of Australia lunch on Friday.

"The markets are still very under-supplied. I think what we are going to see in the next 18 months to two years is a capacity shortage.

"It has to fall back on the financiers to support developers to build some of these projects. We will not see oversupply because the under-capacity will not allow us to get there."

He also dismissed the idea of a "property bubble", particularly in Sydney, where demand would swallow up any "real oversupply".

"On the housing market on the fringes in Sydney such as the south-west and the north-west, for example, we are in a critical shortage," he said.

Mr Walker, who is overseeing the five-tower Collins Square project, also supports the need for more housing in Parramatta, saying "it is now Parramatta's time".

The state government's $8 billion investment in projects and infrastructure, including the light rail into Parramatta and faster train services to the Sydney CBD, would guarantee Parramatta's success at becoming Sydney's next big city, he said.

Commonwealth Bank had expressed interest in occupying one commercial tower in Parramatta Square but Mr Walker said he preferred different tenants in the towers rather than one single employer.

"It is important to get a mix of different cultures and businesses in Parramatta," he said.

[greengiraffe]

Aug 14 2015 at 4:48 PM Updated Aug 14 2015 at 6:09 PM

Greenfields property buyers feel pressure of tighter lending rules

'We're lucky we got in when we did': House-and-land package buyers Jamie Pearce and Jasmine Healey with children Koby and Ryder in Clyde North, southeast of Melbourne. Wayne Taylor

by Michael Bleby
Jamie Pearce and Jasmine Healey bought a house and land package last weekend. It's currently a muddy field, but within a year they hope the site at Ramlegh Springs, southeast of Melbourne, will be developed and have their new home on it.

Like thousands of first-home buyers before them, the 26-year-old Pearce and 24-year-old Healey are getting a mortgage.

Commonwealth Bank of Australia subsidiary Bankwest has agreed to lend the $213,000 the couple needs to buy the land and the further $109,000 for their off-the-shelf four-bedroom house. It's a thrilling, terrifying ritual many young couples know.

"It's petrifying but exciting at the same time," Pearce says.

All that could be about to change, however. CBA plans to curb loans to new housing developments will hit first-home buyers and investors in outer suburbs by delaying the approval for buyers to later in the process.

Rather than getting a bank commitment to fund them six months in advance of the land being titled, buyers like Pearce and Healey would have to wait longer, until as little as three months before title, under plans reported by The Australian Financial Review this week.

Developers said the change will limit land development, putting further pressure on already-surging prices by limiting the supply of houses.

"The bottom line is if they walked into the sales office under the new conditions they wouldn't be able to buy off me on that particular project," says Gerrard Ellis, a director of Oliver Hume, the company marketing the Ramlegh Springs estate. "We would have to turn them away."

Forget house construction. This is all about land, and the way it is financed. If banks won't commit to financing this far out, developers who depend on presales, won't be able to unlock the construction financing - often from the very same banks - that they need to put down roads, install sewers, water and electricity before the land gets titled and can be built on.

"The crux is getting the loan to buy the land first," Ellis says. "That's start of the whole process."

The move is part of a wider bid by CBA to cut its exposure to investor lending - a move all the banks have been making. But Ellis says that it will hit first-home buyers and owner-occupiers more than investors.

Of course, buyers who don't need financing to buy a house-and-land package won't be affected.

But that's not the case for Pearce and Healey, who have two young children. They also worry that if they had to wait, prices at Ramlegh Springs would rise, making things even more expensive.

"We'd probably be renting for the rest of our lives," says Pearce, whose employer makes playground equipment and water tanks. "If you hold off, it's going to get more expensive."

The move, if adopted by the four big mortgage-lending banks, would limit development only to the developers big enough to fund land construction themselves. It would also put a sharp break on greenfields housing development in a place like Clyde North, which includes Ramlegh Springs, and where new house approvals have near-tripled to 1,350 over the past five years, according to consultancy MacroPlan Dimasi.

Pearce says they couldn't buy if the rules made it harder to get a mortgage.

"It would take a long, long time to save, it would be astronomical," he says. "We're lucky we got in when we did."

CBA to tighten lending for new homes
Date
August 10, 2015 - 10:08AM
Michael Bleby


Many developers have to pre-sell up to 50 per cent of all lots on a planned site before a bank will lend money needed to start earthworks and install services that make it developable for houses. Photo: Penny Stephens

Commonwealth Bank of Australia plans to curb loans to new housing developments, a decision that will hit first-home buyers and investors in outer suburbs.

A CBA presentation to brokers, marked "confidential", outlines a plan to delay the approval of finance for buyers of lots until the land is ready for development and all preliminary work such as roads has been completed.

Developers said the change will limit land development, putting further pressure on already-surging prices by limiting the supply of houses.

Danni Addison, head of the Victorian Urban Development Institute, says the CBA's plan the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences.
Danni Addison, head of the Victorian Urban Development Institute, says the CBA's plan the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences. Photo: Eddie Jim
This policy will restrict pre-sales of houses. Many developers have to pre-sell up to 50 per cent of all lots on a planned site before a bank will lend money needed to start earthworks and install water, sewerage and electricity services that make it developable for houses.

The decision, which is expected to become CBA policy in the next few weeks, will increase the pressure on developers already struggling with slow land release and title processes. It could slash development and send prices up, developers said.

"If it's adopted by all banks, it will make it more difficult for all developers to fund construction of land for first home buyers and second home buyers," said David Payes, the managing director of developer Intrapac Projects and president of lobby group Urban Development Institute of Australia, Victoria. "We need to supply land to keep housing at affordable prices."

Unlike tougher lending policies reported last week, the bank's latest move would not hit apartments but housing developments in the growth corridors of Sydney, Melbourne and Brisbane. New detached home sales rose last financial year to 73,507, a four-year high and more than four times the number of units and apartments sold.

New housing developments carry their own risks, however, and the banks have been burnt by falling land values before. Land values fell 5 per cent in the first half of 2009 after new dwelling commencements dropped 17 per cent from 159,730 to 132,580 the previous year, Housing Industry Association figures show. The tightening by the Commonwealth Bank may be an attempt to pre-empt any loss in land value caused by the building boom.

The change won't just target first home buyers. Investors account for as much as 45 per cent of buyers in new housing developments. While it will constrain supply, the change is consistent with reductions in lending to apartment investors.

'Natural part of cycle'
"This is just a natural part of the cycle," said Rod Fehring, the executive general manager for residential at developer Frasers Australand, one of the country's largest. "It's prudent for banks to be careful of their exposures to different segments of the market."

Many in the market are concerned. "There is no justification for cutting off the credit tap for new residential development," said Harley Dale, HIA's chief economist. "It would be very concerning at this point in time if it became more difficult for people to get into a new home, which is the end issue here."

The move would only worsen a situation in which house prices are already rising faster than incomes, Dr Dale said.

"There are going to be fewer people that can get into a new home in greenfields developments than would otherwise be the case, which does nothing to improve housing affordability," he said.

The bank said the move was simply part of a constant review of its loan policies.

"In line with our responsible lending commitments, we constantly review and monitor our lending standards to ensure we are maintaining our prudent lending standards and meeting our customers' financial needs," the bank, the country's largest mortgage lender, said in a statement.

Crucial step
Under the new policy it will only accept valuations on lots – a crucial step in the mortgage approval process – after an external valuer has physically examined the site.

"We believe a more accurate measurement in getting a valuation on unregistered land at an appropriate time should instead be based on the valuer having access to the estate and being able to physically identify the allotment," it said in the presentation.

Previously, the bank would commit to a loan with an assessment based on the development plan, as early as 12 months before a lot was accessible.

But developers said the move – which will make things harder for smaller players than larger ones – will have wide-ranging consequences.

"This action directly targets the production of new housing stock; jobs, supply, prices and therefore the broader economy will feel the effects of the bank's action," UDIA Victoria chief executive Danni Addison said.

"It is simply neither justifiable nor understandable and could very well lead to a significant contraction in supply and a reduction in new housing options for buyers and renters."

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]

Fears over Chinese property reporting in mainstream media
THE AUSTRALIAN AUGUST 17, 2015 12:00AM

Michael Bodey

Media and Entertainment Writer
Sydney
Concern is mounting in the Australian Chinese community over its portrayal in mainstream media.

The anecdotal evidence about the effect of Chinese investment on the Australian residential property market in particular — which one Fairfax Media article dubbed the “Chinese invasion” — has resulted in many TV, radio and print stories vilifying international investment.

“There is concern in the Chinese community regarding their portrayal by mainstream media,” said Mimi Chau, director of the Asian Media Centre.

The Australian New Express Daily’s Lawrence Chan agreed. “Chinese do not feel good about the negativity on their investments (in) Australian properties and business that is growing in the mainstream at the moment,” he said. “We never want to live nor to work in a ‘hostile sentiment’, as once happened about 25 years ago when John Howard stirred up the anti-Asian issue.”

Chan, whose newspaper is one of four daily Chinese-language papers published in Australia, said he believed Tony Abbott’s post-election mantra that “Australian is open for business”, but now “some groups in the society” believed there was too much business, especially from China.

The Chinese-Australian community sees the inflow of investment and the current visa arrangements as a positive for the country, and the local Chinese media is reporting as much.

But Chinese-language media are frustrated by some mainstream reporting. There have been pejorative or negative headlines, stories and anecdotal evidence, particularly concerning the Sydney and Melbourne property markets.

Recent Fairfax Media headlines included “We ain’t seen nothing yet: Chinese foreign investment in Australian property tipped to surge” and “Wall of Chinese capital buying up Australian property”.

Some stories have pointed to money-laundering through property as China cracks down on corruption. While it is true there is some laundering, Chinese Australians say it is not the common experience.

There is a growing sentiment in media reporting of Australia’s property market, both residential and rural, that Chinese investments are not only keeping a generation of “young Australians” out of the property market but, at the top end, Chinese rural investments are an economic and political Trojan horse.

But the residential and rural property issues are far more complex than racist stereotyping can explain and Chinese Australians fear negative reports are breeding division.

On a practical level, media reporting has also moved discussions into the political realm, which Chinese media fear could result in counterproductive political measures.

For instance, the Canadian government shut down its investor visa program last year after worries about property ­prices, meaning more Chinese capital has subsequently flowed to Australia.

Ms Chau said: “China isn’t about to conquer Australia but contributes to its progress by significant investment and resources.” She said it was important for the Chinese and other ethnic media in Australia to work with mainstream media on such issues.