Australia Property

[greengiraffe]

New housing sales slump 5.7pc for July
AAP AUGUST 28, 2014 11:31AM

THE housing market has suffered a setback to the start of the financial year after enjoying a strong recovery in 2013-14.

New home sales fell 5.7 per cent in July, seasonally adjusted, after a 1.2 per cent rise in June, the Housing Industry Association (HIA) said today.

However, HIA chief economist Harley Dale is still expecting 2014-15 to be a strong year for housing construction despite the July fall.

“The 2013-14 fiscal year saw the recovery in new home sales gather strong momentum,” he said.

“New home sales and building approvals may have peaked for the cycle, but their levels remain historically elevated.”

Dr Dale said more should be done to help increase the supply of housing, which would help the overall economy and keep a lid on house prices.

“A serious focus on addressing conspicuous impediments to new housing supply, such as large and costly planning delays and a significant lack of titled land would of course extend the recovery,” he said.

Sales of flats, townhouses and semi-detached houses were down 10.9 per cent in July while sales of new detached houses fell 4.7 per cent.

[greengiraffe]

House price pain shifts spotlight to Chinese
PUBLISHED: 30 AUG 2014 02:49:00 | UPDATED: 30 AUG 2014 05:18:50

House price pain shifts spotlight to Chinese
Demand from Chinese buyers is expected to stay strong in coming years – particularly in the upper reaches of the market. Photo: Bloomberg
JACOB GREBER Economics correspondent
Robert Harley | Racism shouldn’t kill investment
A proposal to hit Chinese property ­buyers with extra stamp duties or fees is under active consideration by a ­parliamentary committee charged with finding a solution to the nation’s housing affordability crisis.

With the busiest season for real estate sales about to start, community concern is growing that cashed-up mainland Chinese buyers are pricing Australians out of their own market.

The parliamentary committee is looking at a number of options, ­including a charge on Foreign ­Investment Review Board approval for residential property.

An even more dramatic measure to be considered by the joint-Coalition and Labor committee – due to report in October – is whether extra stamp duty should be imposed on all foreign buyers. The move could mirror Singapore’s 2011 decision to curb excessive offshore buying with a 10 per cent duty.

Proponents argue that as well as ­generating extra revenue for government, the measure would be similar in concept to the royalties charged by states like Queensland and Western Australia on iron ore shipments.

Committee chair Kelly O’Dwyer told AFR Weekend that the body would look at what other countries were doing to address potentially distorting impacts of foreign investment. “Obviously this is an issue that needs to be considered,” she said of the capital charge.

The push to potentially impose restrictions jars with warnings by Treasurer Joe Hockey and the ­Business Council of Australia, which warned on Friday against discouraging Chinese investment more broadly in the economy. Other investment experts say FIRB rules had become riddled with inconsistencies.

Ms O’Dwyer, a Liberal MP, indicated the committee would almost certainly call for changes in conveyancing forms to identify the nationality of buyers.

Other potential recommendations would include tough new penalties for foreign buyers who breached FIRB rules. One option would be to introduce a sliding-scale of penalties for offshore law-breakers based on a percentage of the property’s value.

“We want to make sure the laws are enforced and people have confidence . . . that those who don’t observe those laws face significant penalties.”

The House of Representatives ­economics committee heard fresh ­evidence on Friday from FIRB chairman Brian Wilson who said it was “very difficult and very expensive” to police foreign buyers who deliberately ­concealed their identity to illegally ­purchase existing Australian property.

He also welcomed the prospect of using property conveyancers to collect information on the identity of buyers and verify their foreign residency status on an electronic form.

“This is the ­single-biggest cost effective step that could be taken to shine a light on what’s happening,” he said.

The hearing heard from real estate agents that many Chinese buyers regarded the potential maximum $85,000 penalty for illegally buying an existing home as a “cost of doing ­business” in Australia.

Demand from Chinese buyers is expected to stay strong in coming years – particularly in the upper reaches of the market – as they move to ­shelter capital from the Chinese government and provide housing for their children’s education, according to industry experts.

However fears that the surge in money from China could overwhelm the local market have become inflamed in recent months following the ­publication in March by investment bank Credit Suisse of a report forecasting Chinese nationals would buy around $44 billion in residential real estate over the next seven years.

Stuart Button, First National Real Estate’s national communications manager - speaking to AFR Weekend after addressing the hearing on Friday – said his company’s agents had found that in key parts of Sydney and ­Melbourne mainland Chinese buyers were likely responsible for one in four of the top end purchases.

Mr Button said while foreign ­investors were helping Australia’s economy by funding the construction of new dwellings, there was a growing public perception that they were being outbid by foreign nationals.

“It’s a fantastic thing for the ­economy. For developers to pre-sell to Chinese, Indians or whoever enables them to get their projects off the ground and finished, which means rents don’t go up and affordability improves,” he said.

“But if the general public has a perception the system is failing and foreign nationals are beating Australians out of the market that’s a problem that can be addressed by more information.”

Ed Husic, the Economics Committee’s Labor co-chairman, said he was still weighing the pros and cons of a ­capital impost, and warned there needed to be a clear objective behind the move. “If it’s supposed to calm the market down and the starting point is that you think foreign investment is heating it up – which is still debatable – then you have to know what the impact on demand would actually be,” he said. “And how high would such a fee have to be  . . . it would need to be prohibitive.”

The Australian Financial Review

[greengiraffe]

Spring in property may be a leap too far

Michael Bleby, Mark Mulligan and Alana Schetzer report.
2264 words
30 Aug 2014
The Age
AGEE
English
© 2014 Copyright John Fairfax Holdings Limited. Factiva.Gateway.Messages.Archive.V1_0.ELink
Cover Story

Fears are rising that a spring frenzy could push property markets into dangerous territory. Michael Bleby, Mark Mulligan and Alana Schetzer report.

Natalie and Tim Young are selling their house. Natalie won't say how much she is hoping to get for the three-bedroom dwelling they renovated in the outer Melbourne suburb of Park Orchards. But the couple, who make a habit of buying, renovating and selling houses, know how to time things.

They put the house on the market this week and within 24 hours had already received three inquiries.

"It's a good time to sell: the weather is picking up and it means people can move in before Christmas," Natalie says.

As spring arrives and daffodil buds unfurl in gardens across the country, vendors like the Youngs are counting on another seasonal variety to unleash itself - the buyer under pressure. A fertile mix of more houses on the market and buyers who know they have a limited time to buy and settle before Christmas always gives birth to a strong spring market.

The question this year is whether the spring flurry of activity will push the country's property markets - particularly in Sydney, already seen as frothy - into dangerous territory, with some already calling the market overpriced.

Concerns about an out-of-control housing market could lead the Reserve Bank to apply the brakes. At the more extreme end, some commentators warn of bubble-type scenarios that end with a housing market collapse.

Such is the level of competition in Sydney that so-called wounded underbidders - people who have missed out at auction and become more aggressive - are already resorting to pre-emptive bids in an effort to secure a dwelling.

Last weekend a Federation cottage in Leichhardt in Sydney's inner west sold the day before auction for $1.59 million - as much as $150,000 above the vendor's expectations - to a buyer who was determined not to miss out in another bruising public battle.

Sydneysider Pat White knows exactly what it's like to face repeated knockbacks. Her family of four needed to buy earlier this year after their landlord sold the apartment they were renting.

"The first we found was in [salubrious] Turramurra, a small house," she says. "We went to auction, and just lost out. It was devastating."

A week later they bid on a house in equally salubrious Wahroonga.

"You don't have time to sit back and think again, you just have to go for it."

They didn't get it, however.

"On that one we also lost out. That was so draining. You think 'How am I going to buy the house?"'

When they then found a family house in St Ives (near Turramurra) - not where they'd originally aimed for but which met their needs - the Whites threw all they could at it, especially when they heard the vendor was prepared to accept an offer before the scheduled auction.

"We thought, 'We're going to put all-out'," she says. "We put down the full amount, rather than go to auction."

They weren't the only ones - another interested buyer also made an offer - but the Whites made the higher offer. They got the house. But there were compromises.

"We found this house in St Ives and it's still a lovely, beautiful area. But it's a little bit further from the schools. We had to make compromises - that's what you have to do in this market."

That competition is reflected in the prices. Sydney home values were up almost 15 per cent in July from their level a year ago, with the median dwelling price at $650,000, RP Data figures show. The research company will release its latest figures, for August, on Monday.

Melbourne came second, with an 11 per cent year-on-year gain that put the average value at $540,000. Brisbane took third place, with a relatively modest rise of 6.9 per cent.

"I don't think we have a housing bubble overall, but there's some froth in the Sydney market and some of the potential house purchasers need to be wary," says HSBC bank's chief economist for Australia and New Zealand, Paul Bloxham.

It varies by city, of course. While capital cities are influenced by the same low interest rates, they all have their own dynamics at play. Having suffered a housing shortage for years as planning constraints and lack of investment have resulted in population growth running far ahead of the new supply of houses into the market, Sydney is being driven by record-high levels of investor interest.

In July, investors accounted for 44 per cent of all new housing loan approvals in NSW, compared with 33 per cent in Victoria and a rest-of-country average of 29 per cent. There are also other, less scientific - but more worrying - signs that people are getting carried away, Bloxham says.

"There are more and more property spruikers involved in the market, which is often a tell-tale sign that things are becoming perhaps a little too exuberant," he says.

The reason spring is so strong is that it heralds the start of a timetable that in effect dates to the start of the new school year in January and works back from there. Families, in particular, want their children to be settled in place before the end of the holidays.

With January a holiday-filled dead zone of activity, that in effect means being in place by Christmas. A 60 or 90-day settlement period means signing a contract by mid-October. That puts the pressure on, particularly for buyers who have already missed out.

"There are wounded underbidders out there," says David Morrell, a Melbourne buyers' advocate. "When the wife goes: 'Are we having Christmas in the new house, yes or no?' this is what agents feed off, it's that emotion."

The market is rising, but in a sign that gives some reassurance, it is doing so at a slower pace than last year. The number of houses sold in Sydney in the first five months of last year rocketed 28 per cent to 37,719 from the 31,307 sold between January and May 2012. The figure is up again this year, but by a more modest 6.2 per cent to 40,068, RP Data figures show.

It's a similar picture in Melbourne, where the growing number of sales slowed sharply to 5.1 per cent this year after clocking a 10.7 per cent gain last year. Brisbane, Adelaide and Hobart show the same pattern, while the number of houses sold has fallen this year in Perth, Darwin and Canberra.

"While the change in price is an important market indicator, the number of transactions is also very important," says RP Data's Robert Larocca. "It's the throughput."

So the market is active and competitive. While auctions still account for only about one-fifth of all house sales, with the rest being by private treaty, rising clearance rates - the proportion of houses sold at auction, as reported by estate agents - give some backup to the anecdotal evidence of a market running hot.

Clearances in Sydney in the year to date are 74.6 per cent, up from just over 70 per cent in the same period last year and well up on the 53.2 per cent of the equivalent period in 2012.

Melbourne is holding at 67.7 per cent - little changed on last year's 68.6 per cent.

It all provides plenty of grist for the argument mill at the pointy end of the market. On Monday - the day the Youngs put their house on the market - Standard Life chief economist Jeremy Lawson said factors such as Australia's record-low cash rate - cut to 2.5 per cent a year ago - had driven demand to the extent that Australia's housing market was 20 to 30 per cent overvalued.

The country was highly vulnerable to any international or domestic shock, Lawson warned.

"Overall financial conditions have probably been too loose and that has undermined longer-run financial stability," he said.

For every action there is an equal reaction and in Australia's excited housing market, the spruikers talking up property to investors at one end of the park are almost matched perfectly by the prophets of doom shouting at the other end.

Australia is living with a "Disneyland" delusion that there is no bubble, says Lindsay David, author of Australia: Boom to Bust. David argues ratios of loan sizes to incomes in this country - such as nine times in Sydney compared with 6.2 times in New York and 3.2 in London - are greater than anywhere else.

That's at the extreme end of analysis. A more sober view comes from Reserve Bank governor Glenn Stevens. He is wary of house price inflation, but says credit growth of 6 per cent a year is modest and that household debt levels are sustainable.

Minutes of the RBA board's monetary policy meeting earlier this month make it clear that policy makers are watching the market, but are nowhere near pressing the panic button.

"Conditions in the established housing market ... remained strong and while house price inflation across the country in 2014 had not been as rapid as over the second half of 2013, it had remained robust," the RBA said. "Auction clearance rates in Sydney had eased from their high levels in late 2013, although they had increased in Melbourne more recently. Factors influencing the demand for and supply of housing at present were also noted."

Others are more expansive in their comments. Deutsche Bank chief economist for Australia Adam Boyton says a simple comparison of measures such as price-to-income ratios is flawed, as countries have their own dynamics as well.

"One thing that I think is flawed when we compare housing markets is that we do a price-to-income ratio and we compare it across every different economy and we simply draw conclusions and we say 'Oh, it's higher than what it was when the US bubble burst'," Boyton says.

"Yet we don't look at the quality of the underlying credit decisions, we don't look at Australian law that requires a lender to take into account whether the borrower can service that requirement. All of that stuff is put to one side; we just do a price-to-income ratio to conclude something."

There are signs that efforts to curb unsustainable lending are working. Figures published on Tuesday by the Australian Prudential Regulation Authority showed the proportion of borrowers buying homes with deposits of 10 per cent or less fell to 12.5 per cent of the $84 billion of new loans written in the June quarter.

That was the lowest level in almost three years, and well below 22 per cent recorded in early 2009, when first-time buyers' grants were increased as part of the then Labor government's financial crisis stimulus package.

Rich Harvey, the CEO of buyers' agency propertybuyer.com.au, says there are isolated cases of frothy behaviour in the Sydney market, but says things are under control.

"The key thing that will continue to keep the market tempered is people's incomes," he says. "They can only buy what they can afford to borrow. I don't see the market as frothy. I see it as very competitive and very strong."

The commercial banks, not surprisingly, are keen to hose down talk of any danger. They argue that slow credit growth rates and tight restrictions on who qualifies for a mortgage make bubble formation difficult.

"The perceived expensiveness of our property market is, as much as anything, a social issue," said ANZ chief economist Warren Hogan.

"We simply don't have the speculative credit element there to describe it as a bubble. Low-income earners getting heavily leveraged was the problem in the United States, we don't have that issue here."

Still, the market is picking up. Just under 600 auctions are scheduled in Sydney this weekend and more than 700 in Melbourne, according to Fairfax-owned Australian Property Monitors.

Numbers will continue to build over spring and summer, culminating in multiple "super Saturday" weekends - with more than 1000 auctions each in Sydney and Melbourne - between late October and the week before Christmas.

And in this rising market there are risks. The Reserve Bank this week warned against easing the rules that would make it easier for smaller lenders to pump more credit into the housing market. In doing so, the central bank called for less competition - to the great joy of the big four banks, no doubt - at the expense of stability.

"The supply of mortgage finance in Australia is ample," the RBA said. "Therefore, any proposed policies that could further increase that supply should be subject to rigorous analysis of their costs, benefits to consumer and risks to financial stability." That's pretty explicit in central bank speak not to over-egg the pudding. And it's timely.

"This is shaping as the most vibrant spring since 2010," Larocca says.

Back in outer Melbourne, Natalie Young is getting ready for the "exciting but stressful" process of selling. "Hopefully it will all work out," she says.

Everyone - from her eventual buyer to the Reserve Bank governor - has the same wish.


Fairfax Media Management Pty Limited

Document AGEE000020140829ea8u0001c

[greengiraffe]

Housing sales tipped to warm up as buyers prepare for spring
GINA RUSHTON THE AUSTRALIAN SEPTEMBER 01, 2014 12:00AM

BIDDERS braved the cold to ­attend the final weekend of winter auctions as housing markets in Sydney and Melbourne warmed up for what is tipped to be a strong spring season of sales.

“I think spring has come a week early this year for the Sydney and Melbourne property markets,” said Australian Property Monitors senior economist Andrew Wilson. “We’ve had a big lift in listings in both cities and clearance rates show both markets have maintained it.”

Melbourne recorded a clearance rate of 77.7 per cent, its highest since last September and up 5.2 per cent on the previous week. It was the third consecutive weekend with a clearance rate above 70 per cent as buyers hurried to the 590 auctions held over the weekend.

The rain didn’t stop buyers in Sydney which posted a clearance rate of 81.9 per cent. The corresponding weekend last year tallied a similar rate of 81.7 per cent. Over the past month, which has squeezed in five weekends of auctions, 2660 homes have gone under the hammer across the harbour city. Mosman saw 12 auctions on Saturday, the most of any suburb across the city.

The most expensive home sold was a four-bedroom home behind Waverley Cemetery on Boundary Street in Bronte which went for $3.3 million. A five-bedroom mansion on 1498sq m fetched $3.18m in Melbourne’s exclusive Balwyn.

RP Data said the weekend was the best “lead into spring” ­recorded nationally since 2010, with Brisbane recording a 47 per cent clearance rate, Canberra 72.4 per cent and 46.2 per cent in Perth.

[greengiraffe]

Foreigners illegally buy trophy homes in Sydney and Melbourne

PUBLISHED: 0 HOUR 12 MINUTES AGO | UPDATE: 0 HOUR 12 MINUTES AGO

Foreigners illegally buy trophy homes in Sydney and Melbourne
David Morrell says Chinese nationals are buying homes at 20 per cent to 30 per cent above market value. Photo: Getty Images/Chris Hopkins
LARRY SCHLESINGER
KEY POINTS
Agents and lawyers helping overseas buyers flout the rules to bank commissions and fees.
Chinese buyers adding premiums of up to 30pc in blue-chip suburbs.
Real estate agents and property lawyers are willingly helping foreign investors to illegally buy prestige homes in Melbourne and Sydney, says buyers’ agent David Morrell.

Mr Morrell said foreign buyers without the Australian residency requirement to own existing property and who did not speak English were buying up big land banks in blue-chip suburbs such as Toorak and Hawthorn while the Foreign Investment Review Board took no action.

Mr Morrell likened the powers of the FIRB to “a slap in the face with a wet lettuce”. He said estate agents, whom the FIRB relied upon to report foreign buyers flouting the rules, were looking the other way in return for higher commissions.

“The lawyers are also getting something out of it, so they’re not going to dob in their clients,” he said.

In his submission to the FIRB, Mr Morrell said the problem was most severe at the top end of the market (homes priced above $10 million) and those priced between $1.5 million and $3.5 million in the inner cities.

He said Chinese nationals were buying homes at 20 per cent to 30 per cent premiums to the local marketplace, causing a domino effect where other vendors believe their properties are worth more, meaning local buyers cannot compete.

“At a recent Toorak auction, where the reserve was exceeded by 30 per cent, there were three Chinese nationals competing, neither spoke English or understood the process and literally just kept their hands in the air.”

But he said a proposal to impose extra stamp duty charges on foreign buyers of real estate, which was reported in AFR Weekend, being considered by a parliamentary committee examining housing affordability would have no impact on the activity. “Foreign buyers will just wear it as a cost. It won’t sway them.”

HARSHER PENALTIES
Rather, he said, FIRB rules needed to be enforced and there needed to be much harsher penalties for those that break the law. He also called for agents and lawyers to be disqualified and banned if they facilitated illegal deals.

“I’m not the Cliver Palmer of property,” Mr Morrell said. “If you are a resident and can afford it, I have no problem with that. But those that are flaunting the rules are distorting the market.”

Both the Property Council and the Housing Industry Association said they strongly opposed extra stamp duty charges being imposed on foreign buyers because ultimately Australian home buyers and the construction sector would suffer with few projects proceeding.

Nick Proud, the PCA’s director of its Residential Development Council, said foreign investment played a critical role in leveraging additional housing into the domestic residential market.

“Every new home that a foreign investor purchased enabled up to four other homes to be built for Australians,” he said.

“We have run the FIRB numbers and have worked out that foreign buyers have created between 15,000 and 20,000 homes for Australian buyers this year alone.”

HIA chief executive Graham Wolfe said foreign investors were assisting in the creation of new house and land estates. “They should not be treated any different to local buyers,” Mr Wolfe said.

“We should be enabling supply, not imposing a new tax when up to 44 per cent of the cost of a new house and land package is due to taxation,” he said.

CBRE’s Victorian director of city sales Mark Wizel, who sells many development sites to Asian buyers, warned against “knee-jerk reaction” from state or federal governments.

“There are a vast number of families out there that have Asian developers to thank for holding our development market together in the years following the GFC,” Mr Wizel said.

“Builders, bankers, building suppliers, architects, engineers not to mention the government themselves, via taxes and levies, have all been fuelled by increased appetite from off shore developers in our capital cities.

“Australia must do everything they can to remain attractive and exciting for Asian capital to enter our markets. It is a competitive landscape on the global property front.”

The Australian Financial Review

[greengiraffe]

Housing prices post strongest winter gain in 7 years
AAP SEPTEMBER 01, 2014 11:15AM
Print
Save for later
Housing prices have posted their strongest winter gain in seven years, according to a widely-watched gauge.

The RP Data CoreLogic Hedonic home value index of Australian capital city dwelling prices rose by 1.1 per cent in August, RP data said on Monday.

The rise brought the total gain over the June, July and August to 4.2 per cent, the biggest rise over the winter months since 2007.

Annual growth in prices came in at 10.9 per cent, more than double the gain of the 12 months to August 2013, but the gains were not evenly spread across the country.

RP Data research director Tim Lawless said Sydney and Melbourne are driving a two tier market.

The RP Data figures show Sydney home prices rose by 16.1 per cent in the past year, while Melbourne's were up by 11.7 per cent.

The next strongest markets were Adelaide, Brisbane and Darwin, with price rises averaging between five and six per cent. At the other end of the scale was Canberra, hit by government spending cutbacks, where prices rose by only 1.4 per cent through the year.

Mr Lawless said that now spring has begun there would be a rise in listings of properties for sale over the coming few months, which would be a "real test" for the market.

"Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it's likely that dwelling values will rise even further over the next three months," he said.

[greengiraffe]

CHRISTOPHER JOYE
Record housing investment boom accelerates
PUBLISHED: 01 SEP 2014 13:53:00 | UPDATED: 02 SEP 2014 00:05:46

Record housing investment boom accelerates
New data shows Australia’s immense investment-backed speculative housing boom has continued at a ferocious pace over the past 3 months even in “seasonally-adjusted” terms. Photo: Nicki Davey
Analysis
CHRISTOPHER JOYE
Homes market hits seven-year winter high
New data shows Australia’s speculative housing boom, which is as big as the last investment “bubble” in 2003, has ­continued at a ferocious pace over the past three months, even in seasonally adjusted terms.

RP Data, the nation’s largest property information supplier, reports that after stripping out seasonality in price movements, home values across ­Australia’s eight capital cities climbed at a 15 per cent annualised clip over the three months ended August 31, representing a remarkable 3.6 per cent ­quarterly growth rate.


Investors leveraging off the cheapest mortgages rates in history now account for as large a share of all new housing finance commitments as during the speculative craze that caused concerns for the Reserve Bank of Australia in 2002 and 2003.

The Australian Financial Review‘s analysis finds that last financial year investors made up nearly 39 per cent of new housing finance commitments, an almost identical level to the peak of the boom in the early 2000s. It also makes the boom over the past year very different to its predecessors in 2007 and 2010.


Investment demand is being fuelled by an influx of foreign buyers, which UBS says make up about 40 per cent of all newly developed homes in Sydney and Melbourne, and the $560 billion self-managed super fund sector, which can now leverage its cash five times when purchasing properties. In 2002 and 2003, these forces were not in play.

Capital city home values are also 64 per cent dearer than they were in 2003. Indeed, RP Data’s August index shows home values in the capital cities are 26 per cent above their peak prior to the global financial crisis and 10.2 per cent above the levels touched in 2010.

The bidding war among investors has seen the most expensive properties outperform more affordable assets.

RP Data divides its national index into cheap, medium-priced and expensive homes. In the quarter ended August 31, cheap and expensive homes increased in value 7.9 per cent and 21.7 per cent, respectively. A similar trend has been evidenced over the past year. RP Data’s index suggest that at the end of August, rental yields in Sydney and Melbourne were the lowest among the key capital cities.

Gross yields for houses in Melbourne and Sydney are only 3.2 per cent and 3.6 per cent respectively, which is less than inflation after transaction costs.

While the share of mortgages approved with loan-to-value ratios above 90 per cent fell in the June quarter, this may have been driven by heightened investor activity and the fading of first-time buyers.

Reserve Bank research shows that a much lower proportion of investors take out loans with LVRs greater than 80 per cent and 90 per cent compared with owner-occupiers. Investors have far greater appetite for riskier interest-only loans. Whereas over one-half of investors use interest-only loans, only one-quarter of owner-occupiers do.

This explains the Australian Prudential Regulation Authority’s revelation last week that a stunning 43.2 per cent of all new mortgages in June were interest-only products, which is way above 34 per cent average since March 2008. A proliferation of interest-only investment loans with very low rates was a hallmark of the US sub-prime crisis.

Australian home values measured relative to disposable incomes are ­currently breaching the all-time records set in both 2007 and 2010.

Yet I expect the current boom, which is arguably turning into a bubble, to ­continue until the Reserve Bank starts raising interest rates. Importantly, you do not require mania or double-digit credit growth to have a bubble, as some pundits claim.

What you do need is asset prices way above reasonable estimates of fair value and high levels of leverage, both of which Australia possesses today.

Credit growth numbers are only meaningful relative to incomes and the level of leverage. Like house price appreciation, credit growth is running at ­multiples of incomes and increasing leverage, which should give us all pause.

Anyone not worried about current Australian house price dynamics is a fool. This only ends two ways: higher interest rates and/or macro-prudential brakes on lending.

The Australian Financial Review

BY CHRISTOPHER JOYE
Christopher Joye
Christopher Joye is a leading economist, fund manager and policy adviser. He previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of YBR Funds Management Pty Ltd.

@cjoye

[greengiraffe]

Senior agents deny Asian rorts in blue-chip purchases
PUBLISHED: 0 HOUR 47 MINUTES AGO | UPDATE: 0 HOUR 47 MINUTES AGO

Senior agents deny Asian rorts in blue-chip purchases
Prominent Sydney estate agent John McGrath hasn’t seen Asian buyers rorting foreign investment rules to buy blue-chip real estate. “I am not aware of any such practices. Chinese buyers who purchase through our agents always do so through legitimate methods.  Photo: Peter Rae
LARRY SCHLESINGER
KEY POINTS
Leading real estate executives strongly deny claims of illegal purchases by non-resident Chinese.
The Parliamentary Housing Inquiry Committee is looking into extra stamp duty charges for foreign buyers.
Prominent Sydney estate agent John McGrath says he hasn’t seen Asian buyers rorting foreign investment rules to buy blue-chip real estate.

“I am not aware of any such practices,” said the founder and chief executive of McGrath Real Estate Agents.

“Chinese buyers who purchase through our agents always do so through legitimate methods.”

“We have extended discussions with most of our clients, so we are always aware whether they are buying real estate subject to Foreign Investment Review Board approval or if they have existing residency.”

Mr McGrath was responding to allegations by Melbourne buyer’s agent David Morrell that large numbers of expensive houses in Melbourne and Sydney are being purchased illegally by non-resident Asian buyers, who pay up to 30 per cent above market rates with estate agents and lawyers eager to assist.

Mr McGrath said he strongly disagreed that Asian buyers paid a premium for property.

“Their purchases are well researched and they pay fair market value,” he said. “I am not seeing any systemic evidence they are paying a premium to get into the market. If anything, Asian buyers are slightly more conservative than local buyers.”

He said he was strongly opposed to any changes to the foreign investment rules or an increase in stamp duty for foreign buyers. “The current system works quite well. Imposing a levy on legitimate overseas buyers seems unfair to me,” he said.

RACIST OVERTONES
He warned of “racist overtones” creeping into the debate. “I think from a cultural point of view, we only benefit from overseas residents wanting to invest in our country,” he said.

Ray Ellis, chief executive of First National Real Estate, said it was very easy to get caught up in the hysteria and blame foreign buyers for price gains. “There is no evidence in any shape or form to support these allegations. The strength of property market is what is driving the very good prices being achieved,” he said.

“It’s up to the FIRB to enforce the current requirements in those isolated few cases where people choose to go out side the norm,” Mr Ellis said. Mr Ellis, also a board member of the Real Estate Institute of Australia, said implementing e-conveyancing would provide the data required to monitor and enforce foreign investment rules.

Liberal MP Kelly O’Dwyer, chairwoman of the parliamentary inquiry into housing affordability, said the committee had heard anecdotal evidence of individuals trying to contravene FIRB rules. “Not everyone that is a non-resident foreign investor applies to FIRB for approval.

“But you can’t rely on anecdotal evidence, you need to look at the facts. There are clear deficiencies in the timeliness and accuracy in the information provided on foreign investment. It’s something the committee has taken a strong interest in,” she said.

Ms O’Dwyer said there was also clear evidence that penalties needed to be tougher and on a sliding scale tied to the value of the property purchased.

$85,000 FINE
Currently an $85,000 fine is in place for breaking the law.

She re-affirmed the committee was looking at extra stamp duty charges for foreign buyers – a move the Property Council of Australia and the Housing Industry Association say will hold back development of new housing stock.

“We’re looking at international comparisons such as in Singapore, where there is an additional 15 per cent stamp duty charge.

“Some people have said it will have an impact, others say it will have no impact. We are considering all the evidence.” The committee will report its reco­mmendations to federal Treasurer Joe Hockey on October 15.

A spokesman for Mr Hockey said the government would “carefully consider any recommendations made by the committee”.

The Australian Financial Review

[specuvestor]

CHRISTOPHER JOYE
Record housing investment boom accelerates
PUBLISHED: 01 SEP 2014 13:53:00 | UPDATED: 02 SEP 2014 00:05:46

Record housing investment boom accelerates
New data shows Australia’s immense investment-backed speculative housing boom has continued at a ferocious pace over the past 3 months even in “seasonally-adjusted” terms. Photo: Nicki Davey
Analysis
CHRISTOPHER JOYE
Homes market hits seven-year winter high
New data shows Australia’s speculative housing boom, which is as big as the last investment “bubble” in 2003, has ­continued at a ferocious pace over the past three months, even in seasonally adjusted terms.

RP Data, the nation’s largest property information supplier, reports that after stripping out seasonality in price movements, home values across ­Australia’s eight capital cities climbed at a 15 per cent annualised clip over the three months ended August 31, representing a remarkable 3.6 per cent ­quarterly growth rate.


Investors leveraging off the cheapest mortgages rates in history now account for as large a share of all new housing finance commitments as during the speculative craze that caused concerns for the Reserve Bank of Australia in 2002 and 2003.

The Australian Financial Review‘s analysis finds that last financial year investors made up nearly 39 per cent of new housing finance commitments, an almost identical level to the peak of the boom in the early 2000s. It also makes the boom over the past year very different to its predecessors in 2007 and 2010.


Investment demand is being fuelled by an influx of foreign buyers, which UBS says make up about 40 per cent of all newly developed homes in Sydney and Melbourne, and the $560 billion self-managed super fund sector, which can now leverage its cash five times when purchasing properties. In 2002 and 2003, these forces were not in play.

Capital city home values are also 64 per cent dearer than they were in 2003. Indeed, RP Data’s August index shows home values in the capital cities are 26 per cent above their peak prior to the global financial crisis and 10.2 per cent above the levels touched in 2010.

The bidding war among investors has seen the most expensive properties outperform more affordable assets.

RP Data divides its national index into cheap, medium-priced and expensive homes. In the quarter ended August 31, cheap and expensive homes increased in value 7.9 per cent and 21.7 per cent, respectively. A similar trend has been evidenced over the past year. RP Data’s index suggest that at the end of August, rental yields in Sydney and Melbourne were the lowest among the key capital cities.

Gross yields for houses in Melbourne and Sydney are only 3.2 per cent and 3.6 per cent respectively, which is less than inflation after transaction costs.

While the share of mortgages approved with loan-to-value ratios above 90 per cent fell in the June quarter, this may have been driven by heightened investor activity and the fading of first-time buyers.

Reserve Bank research shows that a much lower proportion of investors take out loans with LVRs greater than 80 per cent and 90 per cent compared with owner-occupiers. Investors have far greater appetite for riskier interest-only loans. Whereas over one-half of investors use interest-only loans, only one-quarter of owner-occupiers do.

This explains the Australian Prudential Regulation Authority’s revelation last week that a stunning 43.2 per cent of all new mortgages in June were interest-only products, which is way above 34 per cent average since March 2008. A proliferation of interest-only investment loans with very low rates was a hallmark of the US sub-prime crisis.

Australian home values measured relative to disposable incomes are ­currently breaching the all-time records set in both 2007 and 2010.

Yet I expect the current boom, which is arguably turning into a bubble, to ­continue until the Reserve Bank starts raising interest rates. Importantly, you do not require mania or double-digit credit growth to have a bubble, as some pundits claim.

What you do need is asset prices way above reasonable estimates of fair value and high levels of leverage, both of which Australia possesses today.

Credit growth numbers are only meaningful relative to incomes and the level of leverage. Like house price appreciation, credit growth is running at ­multiples of incomes and increasing leverage, which should give us all pause.

Anyone not worried about current Australian house price dynamics is a fool. This only ends two ways: higher interest rates and/or macro-prudential brakes on lending.

The Australian Financial Review

BY CHRISTOPHER JOYE
Christopher Joye
Christopher Joye is a leading economist, fund manager and policy adviser. He previously worked for Goldman Sachs and the RBA, and was a director of the Menzies Research Centre. He is currently a director of YBR Funds Management Pty Ltd.

@cjoye

Sounds very much like Singapore 2 years ago isn't it? There is nothing new under the sun unless we choose to say "this time it is different". But it is a very bold and politically incorrect though true statement to say "Anyone not worried about current Australian house price dynamics is a fool", he should also remember that a market can remain irrational longer than one can remain solvent. Like I said, every rational person can see a bubble but everyone chooses whether they want to take their chances because nobody knows when it will end.

[greengiraffe]

House price correction inevitable, warns David Gonski
THE AUSTRALIAN SEPTEMBER 02, 2014 3:46PM

Damon Kitney

Victorian Business Editor
Melbourne
https://plus.google.com/118107316791307666801

Foolish to believe housing price will always rise
ANZ chairman David Gonski says a correction in the housing market is inevitable amid growing concerns that soaring house price growth in the capital cities risks further inflating a property bubble in Australia.

After new statistics this week showed that house price growth accelerated in the past three months, Mr Gonski said in Melbourne today that all the banks “are very aware of history”.

“They know that you can have the growth in prices that we have had and over time and there will be a correction,” Mr Gonski said.

“I don’t know whether it is going to happen tomorrow, at five o’clock this afternoon or in three

months. I have no idea. But the fact is anybody who believes that prices will always go up is a fool,’’ he told a lunch staged by the British Australia Chamber of Commerce.

The latest statistic showed 15 per cent annualised capital growth across the eight capital cities in the last quarter.

Auction clearance rates on average across the nation were 70 per cent last weekend and 80 per cent in Sydney.

But Mr Gonski said that provided the proper checks and balances were in the system, there was no reason to curb housing lending.

“I think what you have to do is be prudent, look at the risks carefully. You have to remember that you have proper prudential checks so people can afford to do what they are doing,” he said.

“If that is the case they should be allowed to have the wonderful experience of

borrowing money and buying a house,’’ he said.