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Interesting country... sustain growth in population coupled with declining home ownership will mean that investors will continue to derive value via rental yield and gradual capital gains over the wrong term...
Home ownership policy a failure for 50 years: Saul Eslake
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Australia’s home ownership rate is the lowest it’s been since 1954, says economist Saul Eslake.
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Home ownership rates have fallen to their lowest levels in more than 50 years as growing numbers of young adults abandon the great Australian dream.
Former senior banking economist Saul Eslake said that housing affordability had also not improved during this time, despite years of government subsidy programs and low interest rates.
It appeared that negative gearing and first-home buyer grants had mostly lifted the price of established homes, rather than boosting ownership rates or significantly lifting housing construction.
“Australia’s home ownership rate is actually the lowest it’s been since 1954,” said Mr Eslake, a former chief economist at ANZ and Bank of America Merrill Lynch. “Since the mid-1960s, home ownership rates have been steadily declining.
This effectively means Australian housing policy has been failing in terms of its stated objectives (to boost home ownership) for the best part of 50 years.”
The ownership rate revelations come as speculation continues that the Reserve Bank could drop interest rates again tomorrow, off the back of an unexpected fall in inflation and banks lifting market mortgage rates, blaming rising capital compliance costs.
Over the past fortnight, the four major banks have lifted mortgage interest rates, with Westpac’s up by 0.2 percentage points, ANZ by 0.18, the Commonwealth Bank by 0.15 and NAB by 0.17.
Mr Eslake said there had been little progress in boosting home ownership and housing affordability (prices compared with average income) in Australia despite interest rates over the past 20 years being roughly half of the rate of the previous 20 years.
“During this time governments have (also) spent billions of dollars through first-home owner grants and tax concessions ostensibly in the name of promoting home ownership,” he said.
Despite this, home ownership rates were the lowest they had been since the 1950s and population growth rates had started to outstrip new housing supply. Mr Eslake said home ownership rates in the 25-45 age bracket had declined by about 10 percentage points over the past 20 years.
This meant more people would retire without owning a home, putting pressure on the welfare system as more superannuation money was spent on housing, and lifting rental market competition.
At the time of the 2011 census only 47 per cent of 25 to 34-year-olds were in the housing market, compared with 61 per cent in 1981. For 35 to 44-year-olds, home ownership had fallen from 75 per cent to 64 per cent over that period.
“If nothing changes then home ownership rates will continue to decline,” Mr Eslake told a PowerHousing Australia Forum in Brisbane. “As this age cohort (25-45) rolls up into older age groups, it’s not as if they are going to be able to get 25-year mortgages in their late 50s so they can be a first-home buyer.”
He said the “nature and severity” of the housing affordability problem was such that it required a long-term bipartisan agenda and significant policy changes to avoid major future problems.
The affordability gap in property was leading to a growing wealth disparity between home owners and non-home owners — up from $500,000 to $900,000 on average over the past 10 years.
There were also distortions in the figures because many people had fallen out of the home ownership equation.
The proportion of income spent on mortgage repayments for first-home buyers had fallen from 27 per cent to 22 per cent since the global financial crisis but this was mainly because the people who could still afford to enter the market had higher incomes.
The ageing population also meant there was a higher proportion of people older than 55, who typically were home owners. When national figures were rolled up, this masked falling home ownership in younger age groups.
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Australian property sellers forced to 'meet the market' as housing boom slows
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/k/n/r/b/b/image.related.afrArticleLead.620x350.gknwwm.png/1446368107587.jpg[/img]Agent and auctioneer Andrew Crotty, of Biggin & Scott, auctions the property at 106 Park Street, Abbotsford, in Melbourne. Josh Robenstone
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by Su-Lin Tan
Caution has swept the Sydney and Melbourne housing markets, as buyers and sellers revise their positions and transact at lower prices amid a housing slowdown.
The national auction clearance rate was 63.3 per cent based on 2493 auctions in the past week. While the rate was lower than the same time in 2014 (68.1 per cent), there were 20 per cent more auctions in 2015.
Sydney cleared a preliminary 63.5 per cent, which was better than 61.3 per cent the previous week. The eastern suburbs and the inner south performed well.
A heritage home in the beachside suburb of Clovelly sold for $2.62 million through McGrath's Adrian Bo and Thomas Heath. The three-bedroom home at 20 Greville Street attracted three bidders, who bid confidently.
"The parties understood what has been happening in the market in the last three weeks. All had appropriate expectations," Mr Bo said.
In Beecroft, things were a bit slower. A $3.4 million four-bedroom home over 1663 square metres at 155 Copeland Road East Beecroft was passed in.
NEGOTIATING PRIVATELY
McGrath's Rebecca Roe, who is marketing the property with Kevin Dearlove, said they were negotiating privately with buyers and were confident the house would sell.
"The home was unique for Beecroft … close to Cheltenham Girls. But the market has come down a bit," Ms Roe said.
Western Sydney, where prices have been trending down, is also playing catch-up.
"There were more buyers out this weekend because they are out looking for a good deal [after hearing news the market has slowed]," LJ Hooker's Peter Tannous said.
"[In Merrylands] we sold four properties yesterday because owners realised they need to meet the market.
"The message to vendors is faster with the advent of the internet."
In western Sydney more than 5000 people attended the Sydney Buyer Expo at the Showground in Homebush – the same number as in 2014. The expo showcased residential specialists in residential communities, house and land packages, as well as builders, conveyancers and banks. However, attendees exercised caution.
DON'T BELIEVE EASILY
"We don't know the true north these days," one couple, who were first-home buyers, said. "We don't have a rudder. Everybody is telling us a different thing, so we don't believe easily. On the other hand we are emotional – we want the best home with a view."
In Melbourne the auction clearance rate fell this week, down to 65.4 per cent after 69.7 per cent the previous week.
Auction volume also fell in the lead-up to Melbourne Cup, with 611 auctions held over the week, compared to 1690 the previous week. The north east was the best performer, followed by the inner south.
The preliminary clearance rate in Brisbane this week was 58.2 per cent, up from 48.8 per cent the previous week.
The Gold Coast, tipped to be a good place to invest by SQM Research's Louis Christopher, did well with a 51 per cent clearance rate.
Market analyst Eliza Owen said home buyers should continue to be wary about paying off their homes, especially owner-occupiers who do not receive rental income.
She said properties everywhere except the ACT were highly unaffordable relative to incomes.
"If wage growth continues to fall and interest rates rise in the long term, it will be harder for households to repay large amounts of debt.
"Further exacerbating the situation are subdued commodity prices, which the International Monetary Fund expect to hover around the current low prices for the next five years," she said in her latest blog.
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China's `smurfs' beat cash controls, sending real estate soaring
November 3, 2015
Paul Panckhurst
When Chinese nationals move money overseas, they often do it the way drug traffickers or terrorists do: They break down cash into small amounts below what would trigger official scrutiny.
Moving money in small increments to avoid reporting requirements is called "smurfing," after the little blue cartoon characters who as small individuals constitute a larger whole. A record $US194 billion exited China in September, according to a Bloomberg gauge estimating capital flows.
The Chinese use numerous tactics to transfer money abroad, and smurfing is routine, with some of the cash flowing into overheated property markets in Vancouver, Hong Kong, New York and Sydney.
Now, as Chinese citizens bypass the country's limit of converting $US50,000 a person per year by enlisting friends, relatives and even employees to send out cash on their behalf, banks and regulators around the world are being forced to decide: Is it okay to knowingly allow Chinese citizens to evade their government's controls if it doesn't break your own country's laws?
In Vancouver, a Supreme Court case showed that one lender, Canadian Imperial Bank of Commerce, had assisted such transactions.
Moving wealth abroad
The case arose when a CIBC financial adviser allowed a wealthy Chinese client to route two deposits of $US50,000 through her private accounts to buy a home, leading to the dismissal of the banker for "commingling" her own funds with her client's.Risks, Rewards.
"With the corruption crackdown and the recent financial markets meltdown, more Chinese than ever are looking to move their wealth - some legitimately earned and some not - to safe havens outside of China," said Bill Majcher, a Hong Kong- based former financial crimes investigator for the Royal Canadian Mounted Police.
"Chinese capital is simply too large to ignore, so the banks will do all they can to capture this growing business, regardless of the risk it brings."
Chinese buyers for the first time ranked as the biggest foreign purchasers of U.S. homes in the year through March, laying out $USUS28.6 billion.
In Sydney, Chinese buy almost a quarter of the supply of new homes, and are forecast to double their purchases to $60 billion ($US43 billion) by 2020. In Vancouver, home prices have doubled since 2005, and owning a home can cost as much as 91 per cent of household income.
The Canadian court judgment last year in the fired banker's wrongful dismissal case described the practice of bypassing China's controls as challenging, complicated -- and something that CIBC "supported."Separate Accounts.
'Very infrequent' transactions
"If, for example, a CIBC client wanted to send $US150,000 from China to Canada, the money had to come from three accounts belonging to three different account holders in China and be transferred to three separate accounts belonging to three separate account holders in Canada," the ruling said.
"As long as all the appropriate accounts were set up, the money could be moved."
In April this year, British Columbia's Court of Appeal overturned the lower court's ruling in the banker's favor and ordered a new trial.
Asked about such transfers, CIBC said that it makes money- laundering checks, flags suspicious dealings to regulators and ensures that these "very infrequent" transactions comply with Canadian law.
CIBC isn't legally responsible for ensuring that money transfers comply with Chinese law, a duty that falls on institutions in China, spokesman Kevin Dove said by e-mail.Money Laundering
Global banks have run afoul of regulators in recent years for failing to do enough to counter money laundering, one of the risks that arises from smurfing.
As part of a $1.9 billion settlement in 2012, HSBC admitted to failing to maintain effective anti-money-laundering programs in both the U.S. and Mexico, and in June of this year the bank said it had agreed to a fine to close an investigation into allegations of money laundering at its Swiss private-banking unit.
"We expect our customers to be in full compliance with all relevant laws and regulations including those related to Chinese currency controls," Sharon Wilks, a spokeswoman for HSBC's Canada business, said by e-mail.Capping Withdrawals.
Due diligence
China has been tightening up on channels for outflows, capping withdrawals at overseas automated teller machines and telling banks to watch out for "ants moving their house," the term used in Chinese.
In September, the State Administration of Foreign Exchange said lenders can refuse to process frequent withdrawals or transfers in which five or more people send money to the same overseas account.
In Hong Kong, banks have stepped up efforts to report suspicious transactions and cut the risk of financial crime, the Hong Kong Monetary Authority said in response to questions. Banks accounted for 83 per cent of such reports to the Joint Financial Intelligence Unit last year, the police-customs agency that helps investigate money laundering, the HKMA said.
Asked whether financial institutions are allowed to knowingly help Chinese citizens evade their home country's capital controls, government agencies in Canada and Australia cited requirements including verifying customers' identities and reporting suspicious transactions.
A spokesman for the Financial Crimes Enforcement Network, an agency of the U.S. Treasury Department, said that banks are required to "conduct enhanced due diligence on foreign correspondent accounts."Beijing Investigation.
Last year, smurfing surfaced again when Beijing police busted underground banks for $US23 billion of alleged transactions, including illegal transfers of money abroad. In one case, a man had moved more than $US5 million overseas in a year by breaking up the amount and using different bank accounts that had been borrowed, rented or purchased, according to the police statement.
Penalties for violating the $US50,000 annual cap are tiny: 30,000 yuan ($US4,700) for banks and 1,000 yuan for individuals, according to a SAFE rule issued in 2007. SAFE didn't respond to a faxed request for comment on the rules and their enforcement.
The pooling of $US50,000 quotas is routine. Jenny Cai, a Shanghai resident, said she used her family members to help her buy a $1.2 million apartment in downtown Sydney by grouping her own allocation along with those of her husband and daughter. Her property agent told her the arrangement is commonly used, she said, although her family members needed to falsely state that the cash was to be used for tuition fees.
Elsewhere in China, examples include a company that ordered employees to use their accounts to wire money to Canada for private property purchases, according to Christine Duhaime, a Canadian lawyer specializing in financial crime.
China's rules are being "made a mockery of," she said. "I wouldn't do it if I ran the banks."
http://www.smh.com.au/business/chinas-sm...kpab9.html
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Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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Chinese demand for Australian property waning: Credit Suisse
DateNovember 4, 2015 - 10:02AM
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Patrick Commins
Markets Deputy Editor
Pascoe: Where's the housing bubble at?
The biggest driver of housing prices is employment growth, so it's hard to see Sydney slowing much while jobs are not. Michael Pascoe comments.
Foreign demand for Australian residential property has slowed in 2015 as Chinese consumers tighten their purse strings, piling more pressure on a housing market already feeling the pinch of aregulatory crackdown on local investors and poor affordability.
"Chinese demand for global property could fall by 30 per cent" this year, Credit Suisse analysts Damien Boey and Hasan Tevfik estimate in a recent research note.
And that trend looks to have extended to Australia.
"Chinese bidders have reportedly been less active in foreign property markets" since the August devaluation of the yuan, the analysts say. The key factor driving reduced Chinese demand for foreign bricks and mortar is not tighter capital controls, but the less confident and wealthy Chinese consumer.
"The underlying issue is weakness in the Chinese economy," write the analysts. "Capital flight is tightening credit conditions, which in turn is dampening income growth, wealth and the purchasing power of Chinese residents."
"All things considered, the likelihood is that Chinese flows into the Australian property market have flattened out in 2015."
Potential homeowners will cheer the prospect of less competition, particularly those looking to buy in areas of Sydney, Melbourne and Brisbane which have proved popular with offshore investors.
This Spring, auction clearance rates in Sydney nudged 64 per cent, well down from 75 per cent a year prior. House price growth looks to be flagging in the major metropolitan markets, and there have been a number of reports suggesting prices may begin to decline next year.
It is hard to measure the exact impact on prices from overseas purchasers, but a sharp increase in interest must have provided some extra support to the booming property price cycle. And Credit Suisse's thesis is not that Chinese buyers have disappeared from the market completely. They point to NAB's residential property survey, which suggests foreigners' bought almost one in every six new homes in the September quarter, and close to one in 10 of existing home sales.
But a flattening in the number of foreign purchases of Aussie homes comes at a time when the housing market is entering "marginal oversupply", say the analysts: "demand needs to rise just to keep prices steady".
Meanwhile, locals are being squeezed by tighter regulations and poor affordability.
Complicating any study of foreign demand for Aussie homes is the "distinct lack of timely and accurate data" on the subject, note the analysts. The Foreign Investment Review Board releases annual data, but with a considerable delay. They also point to problems with the enforcement of the FIRB rules and under-reporting.
That means that discussion of foreign buying relies heavily on anecdotes and extrapolation from other data sources.
To come to their conclusions, Hoey and Tevfik have relied on the latter using a couple of more up-to-date proxies – CBRE data that shows Chinese interest in Australian commercial property, and US "all-cash" home sales, which are dominated by foreign buyers and which are reasonably well correlated with Chinese consumer sentiment data.
The proxies combined look a reasonable guide, as they suggested a 39 per cent increase in Chinese purchases of Australian homes in 2012, where the FIRB data showed approvals rose 42 per cent, the analysts say.
"Recently, weak consumer confidence readings are historically consistent with a decline in [US] all-cash purchases of roughly 30 per cent in the year-to-December 2015."
If true, a sharp decline in Chinese interest in our property market may hurt an Australian economic recovery that has been relying on housing activity as a key engine of growth.
"The risk is that house prices flatten out or fall, making it harder for the economy to absorb the mining shock via housing and the consumer," the Credit Suisse analysts write.
"An increase in Chinese demand is required to keep the housing market in equilibrium in lieu of rising supply, and falling local demand. In the absence of a pick-up in foreign demand for housing, it is likely that policy makers will need to stimulate the economy further."
The analysts reckon "deep and timely RBA rate cuts might help to stabilise housing demand by counteracting the overly negative impact of macro-prudential regulation".
But there are good reasons to believe that Chinese buying of property abroad will trend upwards in the long term. The analysts pointing to China's growing middle-class, who have an appetite for new assets. Combine that with a shortage of domestic investment options and ongoing capital account liberalisation, and the structural trend of Chinese money looking for an overseas home stays strong.
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Strengthening economy may tempt more owner-occupiers into housing market
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[img=620x0]http://www.afr.com/content/dam/images/g/k/q/o/e/y/image.related.afrArticleLead.620x350.gkqhul.png/1446622113560.jpg[/img]First home owners and owner-occupiers could return to western Sydney's market if early signs of a pick-up in the economy continue. Michele Mossop
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by Michael Bleby
Stronger employment growth is good news for first home buyers and owner-occupiers as the tidal wave of investors recedes.
The Reserve Bank cited a strengthening economy when it held rates on Tuesday and this could boost home buying in an area such as Ingleburn, south-west of Sydney, estate agents said.
Martin Donnelly is the director of Dunsheas United Realty in Ingleburn. Over the past six weeks the investors who accounted for up to 80 per cent of buyers have all but disappeared as a result of tighter credit measures.
"Once the investors walked away from the market, then we're looking at first home buyers," Mr Donnelly said. "They're still too scared to do anything, they're sitting on the fence."
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Smaller banks have followed the majors in raising rates to investors independently of the RBA rate move. On Tuesday, Bendigo and Adelaide Bank raised its residential variable rates between 0.12 and 0.15 percentage points
Greater job security could, however, encourage would-be buyers into the market.
'CONFIDENCE BOOST'
"It's definitely a confidence boost," Mr Donnelly said. "I think they are just waiting to see what's going to happen next. They've never bought before. They're really, really cautious in what they do with their money."
Economists agree, although they remain cautious about the pace of recovery.
"Stronger jobs growth tends to, by default, provide some support to the housing sector," UBS chief economist Scott Haslem said.
Mr Haslem said he still thought the RBA would make another rate cut to keep monetary policy neutral in the wake of the commercial banks' rate hikes, but said Tuesday's comments about a stronger economy made him less certain.
"It's a 60-40 call, not 90-10, of a regulatory-driven adjustment in order to avoid any potential weakening in the economy just as it's starting to improve," he said.
Regulator-driven efforts to curb investor lending are dampening house-price growth prospects and are also cutting investor demand for credit.
The central bank's own mortgage finance figures last week showed lending to owner-occupiers rose to 5.8 per cent in September from a year earlier, the fastest rate of growth since November 2011.
Lending to investors grew 10.4 per cent, down from June's eight-year high of 11.1 per cent. Lending to business surged.
CHANGE MIGHT TAKE TIME
It may take a while for any real change to come to the western Sydney market, however.
"Vendor expectations are really high," said Patrick Boyce, a real estate agent at Starr Partners Campbelltown, south of Ingleburn. "They don't think the boom is over and they're still chasing high prices."
Dwellings, such as a three-bedroom house in Bradbury, that were advertised between $500,000 and $550,000 were taking about two to three weeks to sell, whereas as recently as three months ago, they were selling on the day of the first open inspection. Many buyers were now holding off, anticipating prices will fall, Mr Boyce said.
"I don't see them jumping in right now," he said.
Independent economist Saul Eslake agreed that a stronger economy – if it continued – would draw first-home buyers into the housing market.
"If the economy actually does firm, it probably is reasonable to say would-be first home buyers will feel more comfortable about committing," he said. "But it's early days."
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Helen Wong of HSBC: property giants ‘to lure more Chinese cash’
Glenda Korporaal
[Image: glenda_korporaal.png]
Senior Journalist
Sydney
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HSBC’s Helen Wong in Sydney yesterday. Picture: James Croucher Source: News Corp Australia
[b]HSBC’s group general manager for greater China, Helen Wong, has a dilemma.[/b]
Her brother, who has been living in Sydney for more than 20 years, has been urging her for years to buy property in Australia.
But the question is whether the market has already gone up too far or whether it will go up even further with the increasing investments in Australia by Chinese property companies.
Wong, who was in Sydney for a HSBC conference on China yesterday, says the arrival of big Chinese property companies such as Greenland, which are involved in big apartment developments in the capital cities, will encourage more Chinese investors.
“The Chinese people have confidence in the big companies that they know,” she tellsThe Weekend Australian.
The low Australian dollar is an added attraction for Chinese investors. “Foreign investors are coming in because the currency has weakened,” she says.
“Although property prices have risen in Sydney and Melbourne it is still a good time for foreigners to buy here because of the weakness of the Australian dollar. When it was around parity with the US dollar it was expensive.”
Based in Hong Kong, Wong oversees a HSBC’s operations in mainland China where the bank has more than 20,000 staff.
HSBC has 175 branches or sub-branches in 57 Chinese cities that employ more than 6000 people. It also runs a back office processing centre in Guangdong province that has another 8000, and a software development operation with a further 4000 people in the same province. It also runs 12 rural banks.
Wong predicts that China’s flow of outward investment, which has already outstripped the level of non-financial foreign investment going into the country, will increase as the country seeks to redeploy its high level of domestic savings.
China has foreign currency reserves of $US3.6 trillion and the government is encouraging its companies to seek more productive offshore investments for money currently investing in low-yielding US Treasury bonds.
Chinese outbound investment, which totalled $US140bn in 2014, is expected to hit another record this year.
“Last year China’s direct investment offshore surpassed inward foreign direct investment for the first time,” she said. “Offshore direct investment is growing at double-digit levels while foreign direct investment into China is only growing at single digits.
“It is another way of dealing with China’s excess capacity.
“China has a high savings rate and high reserves and, if it invests more in companies in tech, food and healthcare overseas it doesn’t need to deploy so much money into US Treasuries.”
Wong believes the growing phenomenon of Chinese outward investment is also good for the country as its means Chinese companies learn much more about how to deal with the West.
“Encouraging ‘going out’ is an important strategy as China has for many years been a closed economy,” she says. “But now we are talking about doing a lot more with the rest of the world.”
Wong says Australia has been one of the largest beneficiaries China’s “going out” policy, attracting 12 per cent of the country’s annual foreign investment last year, only just behind the US.
“Mining has always been at the top of the list for Chinese investment here because that is what Australia can offer,” she says.
“But Chinese interest in Australian agriculture is becoming really big and there is a lot of Chinese interest in education.
“Whatever Australia can offer, China can take.”
Wong says the increasing outflows of capital from China does not necessarily mean that its currency will fall because of its earnings from exports and its big reserves of foreign currency.
She says the deregulation of the Chinese financial markets is continuing with recent lifting of controls on bank interest rates and the opening up of the Hong Kong-Shanghai connection, which liberalises sharemarket flows in both directions.
HSBC predicts that the Chinese currency will be freely floating by 2017. And Wong says the world needs to get use to the fact that the yuan might become more volatile as it was floated.
“The Chinese currency was adjusted by about 3 per cent and it got everyone’s attention,” she says.
“But what about the yen? What about the Australian dollar? There is always going to be volatility.”
Wong says the Chinese government has taken measures to rein in the problem of shadow banking.
“In China we don’t talk about shadow banking any more as it is being contained,” she says.
She says the Chinese currency was already moving to become a reserve currency. More than 30 of the world’s central banks now held Chinese yuan.
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RBA official Malcolm Edey says housing sentiment turning
THE AUSTRALIAN NOVEMBER 07, 2015 12:00AM
Kylar Loussikian
Journalist
Sydney
Sentiment in Australia’s key housing markets appears to be turning, according to a key Reserve Bank official.
Malcolm Edey, the RBA’s assistant governor, said the level of investor activity in the real estate market was higher than previously thought, but additional measures introduced by the banking regulator appeared to be working.
Dr Edey’s comments, made yesterday at a Gold Coast conference, came as National Australia Bank economists lowered their forecast of house price growth for the coming year from 3 per cent to 2 per cent.
“Regulatory changes to address risks in housing credit, particularly investor credit, have tightened conditions in the mortgage market, which is likely to have at least some impact on housing demand, even if only at the margin,” the NAB economists said.
“However, the response from some corners claiming that these factors point to a sharp correction in house prices in the medium term are extreme in our view.”
Dr Edey said investigations by the Australian Prudential Regulatory Authority and the Australian Securities Investments Commission had shown lending standards were beginning to slip. “Specifically, APRA found that in some instances, lenders’ serviceability assessments were based on over-optimistic judgments about the reliability of borrowers’ incomes, or inadequate estimates of borrowers’ living expenses, or that they failed to take into account the possible effect of future interest rate movements on a borrower’s existing commitments,” Dr Edey said.
Despite moves by the regulator to introduce measures to strengthen lending standards — in particular limiting growth in investor lending to 10 per cent or lower — it would take time for their full impact, and that of the more recently announced increases in bank lending rates, to become apparent, Dr Edey said.
Analysts at investment firm Shaw & Partners also weighed into the debate, telling clients the housing “bears” would be wrong again. “House prices are high versus wages, but mortgage payments as a percentage of wages are not out of line with 25-year averages,” Shaw analyst David Spotswood said. “So unless you think the RBA is going to put up rates in the next 12 to 18 months, house prices are not going to crash.”
RBA governor Glenn Stevens, speaking at the Economic and Social Outlook Conference in Melbourne on Thursday, said the official cash rate was likely to stay on hold as home prices appeared to cool and inflation remained under control: “I think everyone knows that were a change to monetary policy be required in the near term, it would almost certainly be an easing, not a tightening.”
Loan payments as a percentage of wages is at 26.3 per cent, according to Shaw, at about a long-term trend and below the levels of two decades ago, when the variable rate was twice what it is now. NAB said housing affordability had not deteriorated as much as the price-to-income ratios would suggest, as those figures did not capture the offsetting positive of lower rates.
“In addition to record low interest rates, a number of years of sluggish growth in housing supply, relative to demand, has helped to allay fears of a severe market correction — at least in certain markets,” they said.
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RBA official Malcolm Edey says housing sentiment turning
THE AUSTRALIAN NOVEMBER 07, 2015 12:00AM
Kylar Loussikian
Journalist
Sydney
Sentiment in Australia’s key housing markets appears to be turning, according to a key Reserve Bank official.
Malcolm Edey, the RBA’s assistant governor, said the level of investor activity in the real estate market was higher than previously thought, but additional measures introduced by the banking regulator appeared to be working.
Dr Edey’s comments, made yesterday at a Gold Coast conference, came as National Australia Bank economists lowered their forecast of house price growth for the coming year from 3 per cent to 2 per cent.
“Regulatory changes to address risks in housing credit, particularly investor credit, have tightened conditions in the mortgage market, which is likely to have at least some impact on housing demand, even if only at the margin,” the NAB economists said.
“However, the response from some corners claiming that these factors point to a sharp correction in house prices in the medium term are extreme in our view.”
Dr Edey said investigations by the Australian Prudential Regulatory Authority and the Australian Securities Investments Commission had shown lending standards were beginning to slip. “Specifically, APRA found that in some instances, lenders’ serviceability assessments were based on over-optimistic judgments about the reliability of borrowers’ incomes, or inadequate estimates of borrowers’ living expenses, or that they failed to take into account the possible effect of future interest rate movements on a borrower’s existing commitments,” Dr Edey said.
Despite moves by the regulator to introduce measures to strengthen lending standards — in particular limiting growth in investor lending to 10 per cent or lower — it would take time for their full impact, and that of the more recently announced increases in bank lending rates, to become apparent, Dr Edey said.
Analysts at investment firm Shaw & Partners also weighed into the debate, telling clients the housing “bears” would be wrong again. “House prices are high versus wages, but mortgage payments as a percentage of wages are not out of line with 25-year averages,” Shaw analyst David Spotswood said. “So unless you think the RBA is going to put up rates in the next 12 to 18 months, house prices are not going to crash.”
RBA governor Glenn Stevens, speaking at the Economic and Social Outlook Conference in Melbourne on Thursday, said the official cash rate was likely to stay on hold as home prices appeared to cool and inflation remained under control: “I think everyone knows that were a change to monetary policy be required in the near term, it would almost certainly be an easing, not a tightening.”
Loan payments as a percentage of wages is at 26.3 per cent, according to Shaw, at about a long-term trend and below the levels of two decades ago, when the variable rate was twice what it is now. NAB said housing affordability had not deteriorated as much as the price-to-income ratios would suggest, as those figures did not capture the offsetting positive of lower rates.
“In addition to record low interest rates, a number of years of sluggish growth in housing supply, relative to demand, has helped to allay fears of a severe market correction — at least in certain markets,” they said.
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House prices ignore naysayers
Carolyn Cummins
519 words
4 Nov 2015
Sydney Morning Herald
SMHH
English
The housing boom keeps giving, with dwelling approvals rising 2.2 per cent in September amid concerns the rise in banks' variable loans will put the brakes on the rate of price growth in the coming year.
But that has not deterred buyers, with a record 229,438 new homes approved in the past year, according to the Australian Bureau of Statistics.
Although the large developers have been warning that the double-digit rate of the price growth will decline, the weak Australian dollar, an undersupply of new homes and a strong local economy are behind Sydney's accelerating values, and to an extent Melbourne's as well, according to Knight Frank's Prime Global Cities Index.
The index monitors and compares the performance of prime residential prices across key global cities.
It says that in the year to September, Sydney recorded an increase of 13.7 per cent, while Melbourne sits in fifth place with an annual increase of 9.4 per cent. The report attributes a shortage of supply and strengthening local demand and foreign interest as the reasons for the strong performance.
This will benefit the residential-focused real estate investment trusts of Stockland, Mirvac, Lend Lease and Frasers Australia.
While Although regional home price data is available only to September, it is clear that the strength in the Sydney market is spreading. Regional NSW home prices are up 8 per cent over the year - the fastest pace of price growth in 5½ years.
The analysts at CLSA said that after Mirvac's quarterly report they felt more comfortable on settlement risk and valuations.
"Mirvac's first quarter for the 2016 financial year update gives us confidence in its full-year guidance and medium-term outlook and growth. Another record high contracts on hand of $2.3 billion and higher volumes and margins has defied recent softness in residential markets, reflective of Mirvac's high-quality, well-located products," the CLSA analysts said.
UBS analysts said Mirvac's medium/high-density projects, particularly in the NSW market, were performing well and had embedded margin. Mirvac's latest project is the Pavilions at Sydney Olympic Park.
"We have a positive outlook for residential given share price and our expectation of stronger-for-longer cycle, fuelled by rate cuts, infrastructure spend and continuing population growth," UBS analysts said.
Michelle Ciesielski, director of residential research, Australia at Knight Frank said the price growth shown in Sydney and Melbourne on this quarter's index was due to a number of factors.
"One factor is the lower Australian dollar, which has influenced the number of expats buying back in Sydney and Melbourne, taking advantage of buying a prime property in these ideal conditions - ready for when they eventually return to Australia.
"Since the Significant Investment Visas, and more recently the new Premium Investor Visas, were introduced in July, foreign money has been flowing into Australia through offshore buyers looking to secure a trophy asset on the waterfront or in one of the cities' more exclusive suburbs," Ms Ciesielski said.
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Chinese interest in Australian properties to continue despite a short-term lull
NaN of
[img=620x0]http://www.afr.com/content/dam/images/g/k/w/f/5/p/image.related.afrArticleLead.620x350.gkw0zg.png/1447231028352.jpg[/img]The level of Chinese investment in Australia will slow but not decline, says experts. Philippe Lopez
[Image: 1425598457909.png]
by Su-Lin Tan
The number of Chinese investing in Australian property will not decline but the pace of their investments will slow, say property experts.
The structural changes and slowdown in the Chinese economy, Beijing's tough stance on corruption and capital control, and fewer cheap deals, are forcing the Chinese to rethink the timing of their investments in Australia, Savills and JLL in Hong Kong said.
"They are taking stock but they are not putting the brakes on. It is simply a deferral – a "wait and see"," Savills Hong Kong's senior director Simon Smith said.
"It's not a long-term trend. They certainly grabbed the opportunities when they were there, but there are limits."
In 2013-14, China overtook the United States as the largest foreign investor in Australia at $27.7 billion, said the Foreign Investment Review Board. Property investments accounted for nearly half of that at $12.4 billion.
But a recent note by Credit Suisse's analysts Damien Boey and Hasan Tevfik said Chinese demand for global property, including Australia, had fallen in 2015.
'MODERATE, NOT FALL'
JLL Hong Kong's head of research Denis Ma disagreed. "Investments will moderate not fall."
He said the Hong Kong example demonstrated the Chinese would "find a way around a barrier", albeit slowly.
"When Hong Kong imposed a 15 per cent transaction tax on foreign investments, it did not deter the Chinese. You still see them in the market," he said.
Institutional players such as property developers and conglomerates which have a presence in Australia such as Dalian Wanda, Country Garden and Greenland, go to Australia to diversify their businesses.
Sinking all their money into China is putting all their eggs into one "emerging market" basket, Mr Smith added.
"They want investments in deep, mature, liquid cities such as London, New York, Sydney … to diversify risks."
AVAILABILITY A PROBLEM
"They will pay the money. They are pretty thick-skinned but their problem is availability. When they see less availability, they will refocus."
Country Garden which builds mega-townships in southern China and is building apartments in Sydney and Melbourne, sets aside an overseas investment budget.
"The government encourages us to take our capital out," chief financial officer Wu Jianbin said.
But Mr Wu said Country Garden will develop in Australia cautiously, focusing on the main markets of Melbourne and Sydney.
Other companies such as the state-owned property enterprise, China Vanke, have instead decided to hold off development in Australia, sources have said.
Retail investors also want to buy property in Australia but Beijing's push to stamp out corruption is slowing them down.
TIGHTER RULES
In late September, China's central government tightened restrictions on cash withdrawals from foreign ATMs in an attempt to prevent capital outflows.
"Folks taking money out of China are not so much concerned about the [housing] market cycle, they are more concerned about getting money out," Mr Ma said.
"Besides, Sydney looks cheap compared to its nearest overseas market, Hong Kong."
While a slowdown is expected, the new year will see fresh Chinese interests in hotels and intellectual property, Mr Smith added.
CBRE Asia-Pacific's executive chairman Rob Blain said there could even be new players such as "powerful second-tier Asian family investors looking for core, prime assets".
"Chinese investment overseas will be a fact of life for the next 20 to 30 years," Mr Smith said.
"They're not lying when they say they are going to be around for a long time."
Su-Lin Tan travelled to China courtesy of Country Garden.
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