Australia Property

[greengiraffe]

Japanese back in the race

Samantha Hutchinson
289 words
30 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Chinese developers have dominated site sale headlines in past months, but a new wave of Japanese groups are joining the race for Australian land.

Japanese developer heavyweights Daiwa House and Sumitomo Forestry are jointly developing a $230 million residential and ­commercial project in Sydney's Summer Hill.

The consortium, in conjunction with local partner EG Funds, will reportedly develop 300 terrace homes in addition to a retail and commercial component at the project at the two ha former flour mill site.

EG Funds took control of the site in August 2007 for $22.5 million.

The deal represents the return of Japanese investors at the end of three-year investment cycle dominated by the presence of Chinese, Malaysian and Singaporean groups.

Yet even as the Reserve Bank of Australia mulls macroprudential measures to tame house price growth and investor-led property buying, analysts predict no let-up in the level of interest shown by foreign groups.

"While it's extremely early days, speculation as to such [macro-prudential] moves doesn't seem to have dampened offshore investor interest in our [residential] market," Morgan Stanley analysts wrote to investors. The analysts were sanguine about the impact that macroprudential tools could have on the strength of foreign demand for residential sites and prices, if ever they were to come into play. "If anything, perhaps sites become marginally cheaper with the introduction of such measures," the analysts noted.

"The losers being anyone holding onto an old suburban office building or shed in the hope of a nice bid from a Chinese or Japanese developer."

Sumitomo subsidiary Emerald Grain last week committed to buying an Ardlink grain storage site in central NSW for $3 million.


Fairfax Media Management Pty Limited

Document AFNR000020140929ea9u0000z

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RBA blamed for fanning surge in speculation
THE AUSTRALIAN OCTOBER 01, 2014 12:00AM

Adam Creighton

Economics Correspondent
Sydney
Auctioneer Philip Kingston, from Gary Beer real estate, sells a house in Caulfield, Victoria. The value of outstanding loans to investors rose 9.2 per cent over the year to August — more than three times as fast as inflation. Picture: Stuart McEvoy Source: News Limited < PrevNext >
••
FORMER Reserve Bank board member Warwick McKibbin has blamed the bank’s ultra-low interest rate policy for unleashing a surge in unsustainable property speculation, at the same time as the housing investment loans’ share in total borrowing rises to its highest level in at least 24 years.

Growth in loans to investors to buy dwellings accelerated to a six-year high in August, new data showed yesterday, prompting renewed speculation the RBA would follow through with a warning it was talking to other regulators about a co-ordinated crackdown on the debt-fuelled property speculation via new “macroprudential” rules.

Craig Meller, chief executive of AMP, yesterday said “finding ways to moderate the investment in property, while still keeping ­interest rates low to generate ­momentum elsewhere in the economy, looks like good policy.”

But Professor McKibbin said the bank had made the wrong call to cut interest rates so low and was facing the consequences.

“A surge in investor borrowing for assets in relatively fixed supply such as housing was inevitable; yet cutting rates was never going to do much to boost business loans or weaken the currency in the current environment,” Professor McKibbin told The Australian. “There shouldn’t be a need for a specific macroprudential policy; existing prudential rules should already be working to limit excesses building up in the system — clearly if they are not then they should already have been changed.”

The value of outstanding loans to investors rose 9.2 per cent over the year to August — more than three times as fast as inflation — to $471 billion, while loans to businesses, which the RBA’s low rates are meant to be encouraging, rose only 3.2 per cent to $758bn.

Professor McKibbin said businesses were not borrowing to ­invest because of prevailing uncertainty about the tax environment, the economic cycle and the impact of ultra-low rates globally.

“The best response now for the RBA would be a series of well-flagged interest rate rises,” he said.

“When rates do rise there will be a lot of adjustment in asset ­prices and we know that will be a problem.”

Strong growth in lending has pushed housing investors’ share of total outstanding loans in the economy — $2.29 trillion in August — to almost 21 per cent, the highest level since 1990 and probably ever. Such loans were 18.5 per cent of the total a decade ago and 3.3 per cent in 1990, according to official RBA data.

Owner-occupier home lending, which includes first-home buyers, grew only 5.4 per cent over the year to $919bn.

Mr Meller said: “The challenge we’ve got as a country, we need low interest rates to stimulate growth, and one of the side impacts of low interest rates is more and more money being invested into property rather than being used to stimulate broader growth in the economy.”

Speaking at a financial services breakfast, Mr Meller said Australia’s rapid population growth justified greater efforts to free up housing supply.

“It always surprises me that whenever there’s debate about the property market everyone jumps to demand side controls and issues or stimulation, rather than looking at the fundamental issue of the residential property market in Australia is that we’re not addressing the supply side,” he said.

The RBA fears the growing share of investors in the home lending market is driving rapid increases in house prices in Sydney and Melbourne that could leave the economy exposed should they fall quickly.

Last week it foreshadowed talks with APRA about the benefits of introducing hard limits on loans to investors.

New Zealand and Britain have introduced “macroprudential” rules with limited success.

Investor home loans highest since 1990
THE AUSTRALIAN SEPTEMBER 30, 2014 1:31PM

Adam Creighton

Economics Correspondent
Sydney
GROWTH in loans to investors to buy houses and apartments has accelerated to a six-and-a-half year high, fanning fears of a Reserve Bank-led crackdown on destabilising, debt-fuelled property speculation.

The value of outstanding loans to investors to buy dwellings rose 9.2 per cent over the year to August – more than three times as fast as inflation – to $471 billion, while loans to businesses rose only 3.2 per cent.

The stellar growth pushed the share of total loans in the economy that are held by housing investors to the highest level since 1990, and probably ever.

The August credit data from the Reserve Bank, released today, confirm the perverse impact of ultra-low interest rates combined with lacklustre business confidence.

They come a week after the RBA canvassed “further measures” to mitigate the stampede of investors into the Sydney and Melbourne housing markets that had caused double digit house prices increases in both cities.

Loans to investors made up almost 21 per cent of the $2.2 trillion value of total housing, business and personal loans in August, up from 18.5 per cent a decade ago and 3.3 per cent in January 1990.

Meanwhile, business credit stood at $758 billion in August and loans to owner-occupiers (which includes loans made to first home buyers) rose 5.4 per cent over the year to $919 billion.

Housing investor loans made up 33.9 per cent of the $1390 billion of outstanding housing loans, also the highest level since 1990.

Personal debt, which includes credit card debt, rose 1.1 per cent to $142 billion.

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Lend Lease bucks trend with record Brisbane sale
ROSANNE BARRETT THE AUSTRALIAN OCTOBER 02, 2014 12:00AM

LEND Lease has defied figures released yesterday pointing to a cooling in housing markets, selling 160 units in four hours at the weekend launch of a Brisbane unit project.

While RP Data released the results of its monthly home value index, showing a meagre 0.1 per cent growth last month across Australia’s capital cities, Lend Lease claimed a Brisbane record for off-the-plan sales with its latest release on Saturday at its twin-tower project, The Yards.

Project director for Lend Lease’s $2.9 billion Brisbane Showgrounds development, Andrew Hay, declined to comment on the RP Data housing figures or forecast demand.

“What I can say is that we’ve been very pleased with the level of demand we’ve received for our product,” he said.

“The campaign was a domestic campaign. We felt there was enough demand within Australia, both within Brisbane and interstate to not need to go overseas. It proved very successful.”

The RP Data CoreLogic Home Value Index revealed year-on-year prices had grown in every capital city, with the standout Sydney market notching up 14.3 per cent gains to a $655,000 median price.

In Melbourne — where prices fell 0.8 per cent for the month — the annual rise was 8.1 per cent. Brisbane recorded a 0.7 per cent increase in September for a 6.4 per cent gain over the last 12 months.

Industry analysts yesterday brushed aside the September house price result, pointing to strong investor activity in new ­developments.

Winston Sammut, managing director of funds manager Folkestone Maxim Asset Management, dismissed the often volatile monthly price data, pointing to the longer-term growth as positive for residential developers.

“I’m still reasonably positive or bullish on the residential companies,” he said.

“This data includes existing homes, predominantly, as opposed to brand new. The implication for companies like Stockland, Mirvac, Villa World and Cedar Woods, who are developers, is slightly different in that the prices we have seen are a ­reflection of existing.”

Tony Sherlock, head of property research at Morningstar, said the sluggish monthly figure had little consequence, but house ­prices — particularly in Sydney — were racing ahead of the rest of the economy.

“I think house prices have got ahead of market fundamentals,” Mr Sherlock said. “When interest rates rise, the gains will be very difficult to sustain or to hold.”

He said developer Mirvac could be exposed to a market turnaround, given its skew to inner-city apartments, while Stockland would be less affected with its base on city fringes.

Stockland managing director and chief executive Mark Steinert said the development company maintained strong demand for new homes, citing a long-term structural under-supply.

Mr Steinert noted southeast Queensland as having a particularly strong outlook.

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Asian developers say 'what's the drama'

Su-Lin Tan
766 words
2 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Chinese developers use the phrase "kua zhang", which roughly translates to "what's the drama", to describe fears that Asian investors are dominating the property market.

Johnson Zhang, the chief executive of Country Garden, one of the biggest Chinese developers, said recent claims that foreigners were inflating the prices of residential sites or pushing first-time buyers out of the market were flawed.

"I feel this debate has errors," he said. "Remember, foreign investors including Asians can only buy new properties. There is a huge second-hand market with enough housing there for locals."

Mr Zhang said 20 years ago there were a lot of Japanese developers in Australia. "So foreign development is not a new thing for Australia," Mr Zhang said.

"We just don't think there should be a fear of foreigners coming to Australia to help it develop."

Another developer, Chinese government-backed Greenland Group's chief executive Sherwood Luo, said his company's developments would not only increase the dwelling stock but would contribute to the economy.

"Australia is a migrant country. This is why it is so multicultural and tolerant. So, it should not matter where property developers come from," Mr Luo said.

The Greenland Group is building Sydney's tallest residential tower in the CBD with 400 units, taking the mantle from Meriton's World Tower.

The Australian Financial Review on Tuesday revealed that billionaire Lang Walker questioned the prices being paid by Asian groups for ­residential developments sites.

In the past two years, dozens of Asia-based developers such as Greenland, R&F Properties, ­Fragrance, Aspial and UEM Sunrise, have spent at least $2.7 billion buying sites.

But Mr Zhang said the prices his company paid for sites were appropriate and accurate.

"I have heard people say that we Chinese are recklessly buying with no consideration of price.

"Chinese developers are prepared to pay for land because they take a long-term capital growth view. Even if we pay more now, we get more in the long term."

Country Garden Australia is owned by Hong-Kong listed Country Garden, one of China's leading property developers, controlled by China's richest woman, Yang Huiyan.

Mr Zhang said it was not just Chinese developers who were bidding higher but local developers such as Harry Triguboff's Meriton had been equally competitive in vying for land.

"Everywhere there was an Asian developer, Meriton was there to fight for it," he said.

Mr Zhang said that in gaining development experience in Australia, his company could become an important provider of the housing stock Australia needs.

"We have a Chinese saying that the student can do more than its master."

Only 15 per cent of Country Garden's nearly-sold $500 million, 830-unit residential complex in Sydney's north-west suburb of Ryde is owned by foreign investors.

Country Garden had specifically targeted its development at local owner-occupiers, not investors, designing apartments with established local architects to create liveable units for professional couples and singles.

The small group of investors is not taking away housing stock from locals, Mr Zhang said.

He and Mr Luo affirmed their companies' intentions to remain in Australia for the long haul.

"We are a Fortune 500 company. In fact, we are ranked 268, so we are globally successful," Mr Luo said.

"We take great care assessing the risks of every investment opportunity. No development which requires a huge outlay is sustainable without returns. We use the same returns model whether it is investments in Europe, America and Asia.

"So we won't go about squandering our money unnecessarily. We just don't do speculative, make-a-quick-buck schemes."

"The capital we inject into the economy provides a multiplier effect, creating jobs which results in more tax revenue for the government. Also, without this much-needed capital Australia's housing supply will suffer and not meet demand."

Mr Zhang said his company's entry into the Australian market was part of a global plan that included expansions to many countries.

Greenland projected global sales of nearly $4 billion for 2014 and has partnered with James Packer's Crown Group to bid for Brisbane's Queen's Wharf precinct development.

Country Garden and Greenland Group have funded their purchases with money from their Hong Kong-listed parent companies. Both said demand was far higher than supply and there was no housing bubble. "You can look at the vacancy rates. Only when there is an over supply will the market collapse," Mr Luo said.


Fairfax Media Management Pty Limited

Document AFNR000020141001eaa20003g

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Australia ‘unlikely’ to follow NZ’s lead on mortgage curbs
PUBLISHED: 0 HOUR 11 MINUTES AGO | UPDATE: 0 HOUR 8 MINUTES AGO

A regulatory crackdown on risky bank property lending – already under way for “the past couple of years” – may be applied to more than just investors but it is “unlikely” to involve New Zealand-style loan-to-valuation caps, Reserve Bank of Australia assistant governor Malcolm Edey has said.

Dr Edey said while banks in Australia were “resilient” and mortgage lending had “historically been relatively safe,” the Australian Prudential Regulation Authority has noted a “trend to riskier lending practices”.

“The rate of growth of investor finance is significantly outpacing the growth in household incomes,” Dr Edey told a Senate committee hearing in Canberra on Thursday.

He said loans to investors currently accounted for close to 50 per cent of new housing loan approvals, with investor activity particularly concentrated in NSW and Victoria.

“In New South Wales, investor loan approvals have increased by about 90 per cent over the past two years.

“It is against this background that the bank said in its Financial Stability Review last week that the composition of housing and mortgage market activity is becoming unbalanced. The review also indicated that we are discussing with APRA steps that might be taken to reinforce sound lending practices, particularly for investor finance, though not necessarily limited to that.”

Dr Edey said it was “unlikely” APRA would resort to LVR limits, because they targeted the wrong parts of the property market.

“I want to emphasise that the banks in Australia are resilient, and mortgage lending in this country has historically been relatively safe.

“APRA has, however, noted a trend to riskier lending practices, and over the past couple of years has been seeking to temper these through its supervisory activities.

“There are also broader concerns with the macroeconomic risks associated with excessive speculative activity, since this activity can amplify the property price cycle and increase risks to households.”

The Australian Financial Review

BY JACOB GREBER

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Tougher foreign investor rules delayed
PUBLISHED: 01 OCT 2014 09:58:00 | UPDATED: 02 OCT 2014 09:18:22


JACOB GREBER AND REBECCA THISTLETON
A much anticipated parliamentary report into foreign property buying has been delayed, reducing the risk its findings could derail delicate free-trade negotiations with China – which the Abbott government hopes to conclude by mid-November.

The government-dominated committee looking into the impact of off-shore investors on housing affordability will report by November 28, about six weeks later than the original mid-October due date.

Committee chairman, Liberal MP Kelly O’Dwyer, said the extra time was needed to ensure the report was as comprehensive as possible. One of its key recommendations is likely to involve the creation of a national property register, which would require the co-operation of states and territories.

“It’s prudent for us to go through a consultation process with the state and territory governments with respect to their transfer of land documents and register,” she said. “We’re undertaking that consultation at the moment, and hope to conclude this expeditiously.”

A central register would enable better monitoring of foreign buyers by the Foreign Investment Review Board, which has come under fire for failing to stop illegal purchases, particularly by Chinese buyers.

POST-SUMMIT RELEASE
The delay means the report is likely to arrive after the November Group of 20 nations leaders’ summit in Brisbane. Prime Minister Tony Abbott has indicated he aims to sign a free trade deal with Chinese President Xi Jinping, who will attend the summit.

The delay comes as the latest data showed momentum in the housing market will bolster prices throughout the spring selling season despite a slowdown in the long-running growth cycle.

Separate retail figures, showing total sales rose a lacklustre 0.1 per cent in August, also confirmed that the property boom is stoking a consumer surge in NSW, where annual spending growth was 8.5 per cent.

HSBC chief economist Paul Bloxham said there was a long-standing link between Sydney property prices and strong retail sales, both because rising valuations generated a positive wealth effect but also because the surge has seen a rise in new dwelling constructions, which need to be filled with consumer goods.

Growth in values was under 1 per cent across the capitals in September, according to the latest RP Data index released on Wednesday. RP Data noted the housing market was still buoyant but the 12-month growth trend was tapering since peaking at 11.5 per cent growth in April.

Slower growth figures came a week after the Reserve Bank of Australia warned that regulators may need to intervene to curb investor lending which it described as “unbalanced”.

ANZ senior economist Riki Polygenis said RBA jawboning may have stunted growth at the margin, but worsening affordability was a likely factor in the slowdown. Ms Polygenis said seasonally adjusted dwelling values showed growth had flatlined.

A slowing in capital gains and a drop in the dollar would be welcomed by the RBA. While an interest rate rise had potential to calm investment and property speculation, Ms Polygenis said it was unlikely and a gain, which the ANZ has foreshadowed for mid-2015, would depend on moves from the US Fed, as well as local macro shifts.

The Australian Financial Review

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RBA in talks with APRA on lending practices

Wed, Oct 01 2014, 23:32 GMT | FXStreet

RBA's Edey: Ongoing talks with APRA on sound leading practices

FXStreet (Bali) - RBA’s Edey (Assistant Governor, Financial System) and Luci Ellis (Head of Financial Stability) are speaking before the Senate Economics References Committee on Affordable Housing, noting
that the RBA is currently on ongoing talks with APRA on sound lending practices.

Main headlines hitting the wires

APRA has noted a trend to riskier lending practices

House prices have risen significantly faster than income

Repayment burdens not particularly high

Hard to be specific on possible tools

Caps on loan-to-value ratios are unlikely

Macroprudential tools need to be carefully targeted

Measures aimed particularly at investor finance, but not necessarily limited to that

Supply factor critically important for housing market

House prices have risen significantly faster than incomes

Monitoring what other countries are doing

Worried about how house price downside would look

Don’t want to kill the investor market

Any measures need to be proportionate, targeted

[edragon]

The RBA Is Preparing To Act To Fix 'Unbalanced' Investor Activity In Australia's Housing Market CLICK LINK HERE!

[edragon]

Opening Remarks by Malcolm Edey, Assistant Governor (Financial System) and Luci Ellis, Head of Financial Stability Department - Inquiry into Affordable Housing

Malcolm Edey
Assistant Governor (Financial System)
Luci Ellis
Head of Financial Stability Department
Canberra - 2 October 2014

Thank you, Chair, for the opportunity to discuss the Reserve Bank's views on this important topic of housing affordability.
This is a subject on which the Bank has published a good deal of analysis over the years. I will refer in particular to our submission to this Inquiry in February, and also to our most recent Financial Stability Review, released last week, which covers our assessment of current developments. My colleague Luci Ellis was the author of the February submission and she will be happy to answer any detailed questions on its contents in due course.[1] In these opening remarks, I will be drawing on some of the key points from those two sources.
There are a number of things that people might have in mind when they use the term ‘affordability’. Affordability measures will differ depending upon whether we are talking about owners or renters, and on whether we are interested in some specific market segment, like first home buyers or low-income households. For owner-occupiers, perceptions of affordability will depend on many things including price, household income, the cost and availability of finance, and a host of factors affecting the needs and aspirations of the buyer. In any analysis it is necessary to make use of summary measures, while acknowledging that these inevitably gloss over the diversity of experience across different types of households.
Much of the public discussion on affordability is focused on home purchasers. A useful summary measure is the repayment on a typical new housing loan expressed as a ratio to disposable income. On that metric, housing affordability in Australia has fluctuated around a broadly stable average over the past three decades, with average repayments varying between around 20 and 30 per cent of disposable incomes. These data are reported in our submission. Currently this figure is a bit below average, but it has been rising in the period since the publication of the submission, as the housing market has gathered momentum.
Over the same 30-year period, the ratio of housing prices to incomes has increased substantially. These developments in prices and affordability have been inter related. Housing prices received a substantial boost from the combined effects of disinflation and financial deregulation, which lowered the cost and increased the availability of finance. Much of the increase in the price-to-income ratio was concentrated over the 10-year period to the end of 2003, when this ratio increased by around two-thirds.
It is reasonable to think of this as a transitional impact on housing prices that will not re-occur. Both the shift to low inflation, and the comprehensive deregulation of the financial system, are things that only happen once. In broad terms, the adjustment of the housing market to this new environment seems to have been completed by around the middle of the last decade. Since then, the ratio of housing prices to incomes has been relatively stable but, for reasons already alluded to, it has been rising recently and is now at the upper end of its recent range. I will return to this point in a moment.
To summarise these stylised facts:
the ratio of housing prices to incomes is at the top of its historical range; but
over time, this has been more than offset by falls in financing costs, so that the typical repayment burden as a share of income is not particularly high. This of course does not rule out affordability problems in particular market segments or for particular types of households.
Our submission made the point that there is no shortage of housing finance in Australia. Housing loan interest rates are currently as low as they have been in a generation, and households are not artificially constrained from borrowing as much as they can reasonably be expected to repay. I have already made the point that perceptions of affordability will differ across different types of households; but, if there is a perceived affordability problem in Australia, it is not due to a lack of finance.
An important theme of our submission was that housing prices and affordability are affected by the interaction of both supply and demand factors. The factors that I have mentioned so far, such as household incomes and the cost and availability of finance, primarily affect the demand side of the market. In the short to medium term, it is these factors that will tend to have the predominant influence on housing price movements. The reason for that is that the supply side of the market is dominated by a large existing stock of dwellings, and new supply takes time to come on stream.
In the longer term, however, supply factors are critically important. It is the supply response that determines the extent to which additional demand results in higher prices over time.
Our submission highlights that Australia faces a number of longstanding challenges in this area, including regulatory and zoning constraints, inherent geographical barriers and the cost structure of the building industry. There are also obstacles to affordable housing created by Australia's unusually low-density urban structure, though this is gradually changing.
Our submission does not seek to offer policy prescriptions for improving the supply-side response. The general point I would make is that we can't improve housing affordability simply by adding to demand. Targeted assistance can certainly help particular groups such as first home buyers, but without a supply-side response, any generalised increase in demand will just be capitalised into prices. Hence an important emphasis in our submission is that due attention needs to be given to supply-side factors in any policy response to perceived problems of affordability.
Let me turn now to some current developments.
I have already mentioned the recent strength in Australian housing prices and I expect the Committee will be interested in the Bank's current assessment of this, particularly in light of the comments made in our Financial Stability Review last week.
Over the past couple of years, housing prices in Australia have been rising strongly. Some of this perhaps represented an element of ‘catch up’ after some earlier weakness. Nonetheless, prices have continued to rise significantly faster than incomes, and this has been associated with strong growth in investor activity.
To cite a few key facts and figures:
National housing prices have been rising at a rate of around 10 per cent over the past year, and around 15 per cent in Sydney.
The rate of growth of investor finance is significantly outpacing the growth in household incomes.
Loans to investors currently account for close to 50 per cent of new housing loan approvals.
Investor activity has been particularly concentrated in New South Wales and Victoria. In New South Wales investor loan approvals have increased by about 90 per cent over the past two years.
It is against this background that the Bank said in its Financial Stability Review last week that the composition of housing and mortgage market activity is becoming unbalanced. The review also indicated that we are discussing with APRA steps that might be taken to reinforce sound lending practices, particularly for investor finance, though not necessarily limited to that.
I want to emphasise that the banks in Australia are resilient, and mortgage lending in this country has historically been relatively safe. APRA has, however, noted a trend to riskier lending practices, and over the past couple of years has been seeking to temper these through its supervisory activities. There are also broader concerns with the macroeconomic risks associated with excessive speculative activity, since this activity can amplify the property price cycle and increase risks to households.
Our discussions with APRA and other agencies on these matters are ongoing, and there will be more to say about them in due course. For now, my colleague and I will be happy to take any questions that you might have.

Endnotes
RBA 2014, Submission to the Inquiry into Affordable Housing. Submission to the Senate Economics References Committee, February.

[edragon]

Just out, improved data in Aug.

Australia Building Approvals data 3.0% M/M and 14.5% Y/Y in Aug
vs 1.0% M/M and 12.7% Y/Y expected,
(2.5% M/M and 9.4% Y/Y in Jul)