Australia Property

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'No worries' in land of the rich

Patrick Commins
684 words
15 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Thanks to their houses, Australians are the richest people in the world, according to the investment bank Credit Suisse.

The fifth annual study by the Swiss bank of global wealth trends found the median Australian adult was worth more than $US225,000 ($258,000) in June, well ahead of the second wealthiest population on this measure, the ­Belgians, at $US173,000.

They were followed by the Italians, French and British, all at around $US110,000.

Only 6 per cent of Australians have wealth below $US10,000, compared with 29 per cent in the United States and 70 per cent for the world as a whole.

Household wealth in Australia is heavily skewed to "real assets" – essentially property – which average $US319,700 per household, or 60 per cent of gross assets. This is the second highest in the world after Norway.

The 2014 Global Wealth Report shows global wealth is 20 per cent above its pre-crisis peak and almost 40 per cent higher than the low recorded in 2008.

Australians have grabbed more than their fair share of the growing pie. The section of the report on Australia is titled "No worries", a headline that some economists may take issue with but which is deserved based on the rapid and almost uninterrupted accumulation of wealth over the past 14 years, as detailed in the report.

Since 2000, the net wealth of the average, or mean (as opposed to median), adult Australian has more than quadrupled, from $US103,151 to $US431,000. That makes us the second richest population on this measure, behind the Swiss at $US581,000.

Over the past 12 months, average adult wealth has grown 5 per cent.

"These are obviously remarkable figures for Australia," Credit Suisse Private Bank chief investment strategist David McDonald said.

"We are well positioned globally in terms of wealth, as well as the spread of wealth."

The appreciation of the currency has been a considerable tailwind over the period but even in constant currency terms, average wealth has grown 145 per cent over the past 13 years to $US369,000 from $US151,000.

While global wealth has increased, the gains have not been spread evenly, with the report finding that the trend since 2008 has been one of increasing inequality, particularly in developing economies.

"The financial crisis has acted as a breakpoint in inequality, as most countries were showing a flat or declining trend before 2007," said Markus Stierli from the Credit Suisse Research Institute, which published the report.

Australia is classified a "medium ­inequality" country by the Credit Suisse researchers, a group that includes New Zealand and is defined by the richest 10 per cent controlling between 50 per cent and 60 per cent of the country's net wealth.

Among developed economies, Hong Kong, Switzerland and the United States are deemed to have "very high inequality", where the top 10 per cent control more than 70 per cent of the wealth.

This is borne out by the average wealth figures of the US. Median adult wealth in the world's largest economy stood at only $US54,000 – well out of the top 10 richest populations.

But when measured on an average – or mean – basis, the US ranked fourth in terms of household wealth at $US348,000.

Bank of America Merrill Lynch chief economist Saul Eslake attributed ­Australia's relatively even spread of wealth in part to its love of property.

"Rising house prices tend to reduce inequality, as they make up part a greater part of middle class wealth," he said.

But with growth in house prices and sharemarkets expected to be more muted over coming years, and with the currency weakening, growth in net wealth can be expected to slow, Mr McDonald said.

Globally, the mean average per adult reached an all-time high of $US56,000, an increase of $US3450 over the previous 12 months, driven by higher share prices.

Key points Credit Suisse study finds median Australian adult worth $258,000. Household wealth in Australia is heavily skewed towards property.


Fairfax Media Management Pty Limited

Document AFNR000020141014eaaf0002h

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Foreign demand for new homes surges in September
AAP OCTOBER 15, 2014 1:59PM


A Sydney home that went up for auction last month. Source: Supplied
FOREIGN buyers are flocking to buy Australian property, snapping up one out of every six new homes — and that number is set to get higher.

Foreign demand for new homes surged in the September quarter and is tipped to rise further next year, according to the National Australia Bank’s latest residential property survey.

Overseas buyers accounted for almost 17 per cent of total demand for new properties and in Victoria, they accounted for almost 25 per cent, or one in four new homes, the report said.

Foreign buyers were also more active in the established property market last quarter, accounting for eight per cent of demand.

Again, Victoria led the way, with foreigners accounting for a record high 11.5 per cent of established property demand, the report said.

Those numbers appear to correlate with the data on first-home buyer activity.

First-timers were less active in the established property market last quarter, but fell most sharply in Victoria, to 15 per cent from 22.5 per cent in the previous quarter.

NAB chief economist Alan Oster said first-home buyers were not competing with foreign investors for property, because foreign buyers opt for high-end apartments — “they’re not buying cheap stuff”.

It’s local investors creating the most difficulty for first-timers, he said, spurred on by low interest rates, superannuation changes and a tax system that encourages property investment.

Douglas Driscoll, chief executive of real estate group Starr Partners, says more research is needed to identify the true level of foreign investment, legal and illegal, in Australian property.

“As an industry, we have absolutely no idea as to what level of foreign investment there actually is,” Mr Driscoll said.

“In Sydney, I’ve heard anything from 10 per cent to 40 per cent.”

A recent survey of property analysts at Australia’s biggest banks and property development companies blamed foreign investment as the main driver of soaring property prices in Australia’s main capital cities.

In the Sydney market, 96 per cent of analysts said foreign investment was a significant to very significant driver of increased demand and prices, according to the Australian Property Institute’s biannual Property Directions Survey.

While there are restrictions on what properties foreign investors can buy, the Foreign Investment Review Board has been criticised for failing to enforce those rules.

A parliamentary inquiry into foreign investment in residential real estate is due to hand down its recommendations in November.

AAP

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Foreigners buy 1 in 6 new homes: survey
AAP OCTOBER 15, 2014 2:00PM

Foreign buyers are flocking to buy Australian property, snapping up one out of every six new homes - and that number is set to get higher.

Foreign demand for new homes surged in the September quarter and is tipped to rise further next year, according to the National Australia Bank's latest residential property survey.

Overseas buyers accounted for almost 17 per cent of total demand for new properties and in Victoria, they accounted for almost 25 per cent, or one in four new homes, the report said.

Foreign buyers were also more active in the established property market last quarter, accounting for eight per cent of demand.

Again, Victoria led the way, with foreigners accounting for a record high 11.5 per cent of established property demand, the report said.

Those numbers appear to correlate with the data on first-home buyer activity.

First-timers were less active in the established property market last quarter, but fell most sharply in Victoria, to 15 per cent from 22.5 per cent in the previous quarter.

NAB chief economist Alan Oster said first-home buyers were not competing with foreign investors for property, because foreign buyers opt for high-end apartments - "they're not buying cheap stuff".

It's local investors creating the most difficulty for first-timers, he said, spurred on by low interest rates, superannuation changes and a tax system that encourages property investment.

Douglas Driscoll, chief executive of real estate group Starr Partners, says more research is needed to identify the true level of foreign investment, legal and illegal, in Australian property.

"As an industry, we have absolutely no idea as to what level of foreign investment there actually is," Mr Driscoll said.

"In Sydney, I've heard anything from 10 per cent to 40 per cent."

A recent survey of property analysts at Australia's biggest banks and property development companies blamed foreign investment as the main driver of soaring property prices in Australia's main capital cities.

In the Sydney market, 96 per cent of analysts said foreign investment was a significant to very significant driver of increased demand and prices, according to the Australian Property Institute's bi-annual Property Directions Survey.

While there are restrictions on what properties foreign investors can buy, the Foreign Investment Review Board has been criticised for failing to enforce those rules.

A parliamentary inquiry into foreign investment in residential real estate is due to hand down its recommendations in November.

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Inquiry seeks tougher screening for foreign buyers
MAGGIE LU YUEYANG OCTOBER 15, 2014 4:00PM

A parliamentary committee will recommend tougher screening for foreign investment in residential real estate by calling for a more robust review regime and the creation of a national register to monitor transaction data, the MP leading the parliamentary inquiry said.

“We are going to put recommendations to the government, including around FIRB (Foreign Investment Review Board) processes,” Liberal MP Kelly O'Dwyer told DataRoom on the sidelines of the Citi Investment Conference in Sydney today. “We think those processes have not been robust enough in terms of auditing and compliance.”

Ms O’Dwyer is leading a parliamentary inquiry into foreign investment in residential real estate, which is due to report next month. The inquiry has been examining whether current policy is boosting the supply of new housing, as it intends to.

Foreign buyers are only allowed to purchase new housing in Australia, and must go through Foreign Investment Review Board processes to buy existing dwellings under certain conditions.

Ms O’Dwyer said evidence showed there were “non-compliance” cases in the process, but “it is very difficult to say what the level of non-compliance is by its very nature”.

That is why the committee will recommend creating a national register “where you actually need to verify information that goes on the register,” Ms O’Dwyer said. The register could also provide better information on whether those transferred titles actually match up with the cases screened by the FIRB, she added.

Foreign buyers, particularly in Sydney and Melbourne, are causing community concerns that local buyers are priced out of the market.

A property survey released by the National Australia Bank today shows that foreign buyers are snapping up one out of every six new homes – a number which is set to increase.)

(Reporting by maggie.lu@businessspectator.com.au)

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Riskier mortgages growing faster, Fitch warns
THE AUSTRALIAN OCTOBER 16, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney
MORTGAGE growth in Australia has been strongest in higher-risk investor loans and interest-only loans, according to ratings agency Fitch, and risks to the Australian banking system would rise if house price growth was to continue at its current rate.

The Fitch research also questions the major banks reporting that investment mortgages performed largely in line with owner-­occupier loans, suggesting loans made to investors have a higher rate of arrears.

But the ratings agency still believes significant losses in banks’ mortgage books are unlikely, with credit standards “broadly maintained” among record low rates and an rise in speculative ­investment.

While house mortgages account for 40 per cent of bank assets in Australia, conservative underwriting standards and portfolio management have limited the risk to banks during a severe economic downturn. Interest-only loans have been growing faster than investment loans for the last six years, according to Fitch, as tax deductibility creates an incentive for buyers to use “riskier” loan products.

Paul Bloxham, HSBC chief economist for Australia, said the Reserve Bank had to be very careful about not leaving interest rates too low and creating a property bubble. “The increase in loans to investors is not a problem in and of itself, since they are typically lower risk borrowers,” Mr Bloxham said. “But it is a signal that some parts of the market are being ­driven by speculative flows.

“The fact investors are more involved in the market is the key reason why interest-only loans are being taken.”

The Fitch analysis, contained in the Australian Banks’ Mortgage Exposure special report, pointed out loans approved that fell outside of serviceability criteria had almost doubled to near 4 per cent since 2008, with a big uptick in the last six months.

“The challenge is that the longer interest rates stay at very low levels the more likely it is these risks might build up,” Mr Bloxham said. “Australia doesn’t have a housing bubble but if prices continue to rise at the same rate as they currently are, the risk of a bubble forming will rise.”

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No bubble here: Steinert
Robert Harley
471 words
16 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Mark Steinert, the chief executive of Australia's largest housing ­developer, Stockland, rejects talk of a housing ­bubble.

"Its almost laughable to suggest ­Australia has a national housing ­bubble," he told the Urban Development Institute of Australia's NSW Conference in Sydney on Wednesday.

"I can think of the lots of markets where the growth is just 4 to 5 per cent," he said.

In a wide ranging panel session, Mr Steinert predicted five more years of demand for Sydney housing. "But don't pencil in 15 per cent growth in prices for the next five years," he said.

Mr Steinert said a 100 basis point rise in interest rates, in 25 basis point ­increments starting next year, would moderate activity but would ­not collapse it.

At the same time, he warned against any drastic steps to stop foreign buying .

And he cautioned his fellow developers in the audience about paying too much for sites and then delivering ­sub-standard outcomes.

Sydney, he said, was set for a golden decade.

"There is five years of undersupply," he said. "The $20 billion of ­infrastructure spending will redefine the urban form of Sydney

"I don't think you have seen anything yet."

It is not just Sydney with positive ­fundamentals. "Look at every city, they are all undersupplied," Mr Steinert said. He rejects the view that Australian housing is overpriced.

"For $US6 million, you could buy a home 80 kilometres from Shanghai. That compares with what $US6 million will buy here,"he said, acknowledging that the metrics might have changed with the downturn in China housing.

At the same time, he is conscious of the need for affordable product. In ­Sydney's north west, 70 per cent of Stockland's customers are first home buyers and occupiers.

Mr Steinert said that over the next decade the middle class in Asia would swell by 1.2 billion and they would seek opportunities that Australia offers like clean air, good food, and education.

"The risk is a big shock to the openness that has made us a great nation," he said, warning against draconian action on foreign investors.

He noted that the Australian market had taken off after Singapore, Hong Kong and Canada had taken strong measures to crimp foreign buying.

"If they [foreign investors] can get a similar product at a less onerous ­taxation outcome, they can go elsewhere; you can kill the goose."

Mr Steinert was critical of the competition for apartment sites, ­particularly in inner Sydney, which has kicked prices by more than 50 per cent.

"We should not pay top dollar for sites and then be unable to create great communities," he said.

"Go down to the south end of the city and have a look at this stuff. Its a ­disgrace," he said.


Fairfax Media Management Pty Limited

Document AFNR000020141015eaag0003t

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Paul Keating is the father of negative gearing and his views will carry weight...

Rein in SMSFs’ property investment: Keating
PUBLISHED: 9 HOURS 6 MINUTES AGO | UPDATE: 5 HOURS 37 MINUTES AGO

Paul Keating . . . ‘If I was treasurer today, I would be looking very hard at the whole entitlement or availability of debt to SMSFs.’  Photo: Nic Walker
NICK LENAGHAN, SALLY PATTEN, JAMES FROST AND GEORGIA WILKINS
Former prime minister Paul Keating has called for a curb on self-managed super funds using leverage to snap up real estate in Australia’s over-heating property market.

The funds are part of an investor-led surge which has pushed up housing prices in the capital cities, most ­noticeably in Sydney, where housing has gained 14 per cent in the past year.

While some of the gains could be attributed to a catch-up as prices recover from a period of slow growth, there has also been “a dramatic acceleration” in investor financing, said Mr Keating, the architect of Australia’s compulsory superannuation system.

“This is associated with the growth of self-managed super funds and their ability to borrow,” he said. “If I was treasurer today, I would be looking very hard at the whole entitlement or availability of debt to SMSFs. They have gearing ­available to them and, of course, many of them are taking the option of buying residential property.”

ANZ chief executive Mike Smith on Friday played down fears about the housing market, saying that while parts of the market were “frothy”, there was still plenty of demand.

“There’s certainly quite a lot of ­supply coming on line in Melbourne and Sydney, especially in the apartment market, and, therefore, we have to be a little careful there,” he said.

“The same could be said for other parts of Australia as well. But there are parts of Australia [where], frankly, there are huge amounts of demand.”

UNAFFORDABLE
Borrowing by self-managed super funds has surged in the last two years, rising from $2.5 billion in 2012 to $8.7 billion by June this year, according to tax office figures.

Much of that debt has been employed as leverage for ­prop­erty purchases.

The tax office figures show SMSFs had $19.5 billion in residential real estate by June this year and another $65 billion in non-residential property.

Mr Keating said the rapid rise in investor financing, accounting for about half of bank housing loans, is outstripping income growth.

“This is making it nearly impossible for younger people, owner-occupiers, to afford to house themselves,” he told a bankers forum organised by ­mezz­anine financier MaxCap in ­Melbourne on Thursday.

“We can’t persist with the position where our children cannot afford to house themselves and that is where we are now.”

The Murray inquiry into the ­financial system in its June interim report raised the prospect of restoring the ban on borrowing by self-managed funds, warning if allowed to continue direct leverage “may create vulnerabilities for the superannuation and ­financial systems”.

DISPUTED IMPACT
Duncan Fairweather, executive director of the SMSF Owners’ Alliance, rejected Mr Keating’s call and said there was no data to prove that self-managed funds were pushing up property prices.

“I’ve seen no analysis that suggests SMSFs are a significant factor. It is more likely the significant factors are low interest rates and pressure on demand.

“SMSFs are no doubt part of the mix but I would be surprised if they were the dominant force,” Mr Fairweather said.

The SMSFOA chief argued ­investments in residential property by self-managed funds had grown in ­proportion to their overall assets over the past five years.

Graeme Colley of the SMSF ­Professionals’ Association also rejected Mr Keating’s assertion. He argued debt held by self-managed funds ­represented just 1.3 per cent of total assets held by the sector. ­Furthermore, 80 per cent of the debt was ­­­against commercial, rather than residential ­property.

Weighing into the debate about whether macro-prudential controls were needed on banks to curb property investing, Mr Keating said this would be better than raising interest rates.

“We don’t need the sledgehammer to crack the nut. What we need to do is to see this effervescence at the top of the property market is tamed.

“The fact that half the loans now are coming from investors, the fact that the speed has picked up so dramatically has to mean that lending standards are ­suffering,” he said.

“If banks tell you lending standards are not suffering at all, don’t believe them.

While curbs on investor-driven demand would help, only adequate supply of new housing could properly address the affordability problem, Mr Keating said.

On this side, major super funds – with asset pools now rivalling those of banks – could soon play an important key role, along with other institutional lenders, in funding residential ­developers, he said.

The Australian Financial Review

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http://www.valuebuddies.com/thread-5501-...l#pid97542

Australian property sector will keep going as construction activities is the main engine that keeps economy going. Moreover, supplies will increase to narrow the gap of undersupply and pace of migration

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Wealthy Australians favour property
AAP OCTOBER 21, 2014 7:15PM

Australia's millionaires pour more of their wealth into real estate than the rest of the world's rich, even though they appear worried about a housing bubble.

Property attracted 33 per cent of their wealth during the first quarter of 2014, well above the global average of 19.5 per cent, a report by global business and technology consultancy Capgemini and Royal Bank of Canada found.

But it was a drop from 41 per cent a year earlier.

"Record low interest rates in the country could be sowing fear of a property bubble, explaining the drop," the Asia-Pacific wealth report said.

Still, Capgemini's wealth management specialist Dorus van den Biezenbos said Australian millionaires saw property as a safe investment.

"That is actually a cultural thing," he said.

"They buy investment properties because they've seen it growing over the last few years, in some cases by double digit figures."

The number of Australian "high net worth individuals" - those with assets worth more than $1 million, outside of the home they live in - increased by 5.8 per cent last year, to 218,700.

That growth was driven mainly by a 6.5 per cent increase in property prices.

Wealthy Australians have placed 22 per cent of their riches in equities, below the world average of 26.5 per cent.

Low interest rates are also turning investors off fixed-income assets, with just 11 per cent of wealth going into bonds, compared with the world average of 17 per cent.

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New lending rules wouldn't be overdone: RBA
AAP OCTOBER 21, 2014 9:45PM

The Reserve Bank says potential changes to lending rules to manage increasing risk in the housing market will not be heavy handed.

Financial regulators are discussing a possible tightening of rules for investors seeking funds, amid concerns about an "unbalanced" market.

Investors currently make up 45 per cent of total loan approvals, with these borrowers mainly snapping up existing properties.

That has helped fuel strong growth in capital city house prices, most notably in Sydney.

RBA deputy governor Philip Lowe says a sharp increase in investors buying property had increased overall risk in the property market.

"It is important to make clear that I am not saying that this will end badly, or even that is likely to end badly -- just that, on average, recent loans are probably a bit more risky than those made earlier," he told a business conference in Sydney.

"Given this, it is prudent for both borrowers and lenders to be careful."

But he says heavily-indebted investors need to be mindful of a slowdown in house price growth when interest rates rose again.

"You need to think about the risks involved in this investment strategy," he told a business conference in Sydney.

"In an environment of low interest rates, one needs to ask the question of whether those low interest rates will be there indefinitely."

But any new lending rules to address rising risk levels will not represent "a return to the type of heavy regulation we saw in earlier decades", Dr Lowe said.

Lenders will always find ways of getting money to those that want it, he said.

"All this means that we need to be realistic about what can be achieved through changes in the regulatory parameters alone," Dr Lowe said.

"This realism, however, need not preclude consideration of modest and sensible changes within the existing prudential framework."