“Our fifth annual Investor of the Year Award has revealed some of the country’s most shrewd investors yet, as we present the property powerhouses who are showing the rest of Australia how it’s done” boasts Your Investment Property Magazine in 2012.
Showing the rest of Australia how it is done, were winners Kate and Matt Moloney. They had built a solid portfolio of 16 properties, with an estimated value of $8.5 million and retired at the age of just 24.
Ten of the properties were in the coal mining boom town, Moranbah, three in Mackay and the remainder in Townsville, Fitzibbon and Miles.
The judges were impressed. Tim Lawless from RP Data said, “They picked the market cycle in Moranbah well, purchasing their properties in the early part of what turned out to be a very strong growth phase.”
David Hows, MD of Real Estate Investar applauded, “At just 24, Matt and Kate have achieved more than most investors do in a lifetime. They’ve shown significant skills across investment strategies and have seen amazing results. They also have a plan to ensure this is just the start.”
Tyron Hyde, director of Washington Brown said, “It’s obvious that Matt and Kate are on the path to glory! They have clear goals and stick to them, in fact, beat them. I particularly like the ‘de-risking’ strategy they are aiming for now, replacing mining income with more secure and diverse areas.”
None of the property experts understood the macro environment and China’s fixed asset investment boom that was creating insatiable, but unsustainable appetite for coal. (‘Has the mining investment boom come to an end?’ – Who crashed the economy?, 24th August 2012)
Yep, you guessed it, “They picked the market cycle in Moranbah well.” Just three years on, and a 75 percent plunge in Moranbah property prices according to Kate, has left her in a “debt disaster”. If Kate and Matt were to sell their portfolio now, they would “still owe the banks about three million of dollars (not including arrears interest and selling costs)” describing it as a “financial cancer.”
Posted in Australian Economy | 11 Comments »
Australia’s rental market is starting to resemble a disaster zone as an oversupply of rentals flood the market at a time of anemic wage growth. Australian Bureau of Statistics figures released today show rent growth is now the lowest in 21 years, at just 0.82 per cent for the year to December 2015.
Mining dominated cities Perth and Darwin are leading the way with rents falling 2.22 per cent and 2.43 per cent respectively for the year. Most of the declines were attributed in the last quarter with rents falling in Perth 1.34 per cent and Darwin, 1.32 per cent.
Canberra notched up its tenth quarter of falls or zero gains. On average, rents there have been steadily falling 0.39 per cent per quarter.
But experts say the figures could be distorted as desperate landlords of vacant rentals resort to providing free iPads, removalists, gift vouchers and rent free periods in an increasingly worsening market.
Agents are encouraging landlords to provide free gifts rather than slash rents to help “prop up” the figures and keep the banks at bay.
Posted in Australian Housing | 25 Comments »
2016 is set to bring more pain for Perth property punters as prices continue to fall on the back of diving commodity and energy prices, rising unemployment, stagnant wage growth, surging vacancy rates and plunging rents.
With more mines destined for care and maintenance resulting in more job losses and pay cuts forecast this year, there are no signs of bottoming for the troubled property market.
The state government’s mid-year review in December disclosed a blowout in the state budget deficit to $3.1 billion by the end of the financial year, attributed to slumping GST revenue, declining mining royalties and a collapse of business investment capex.
WA Treasurer Dr Mike Nahan said “Put that into context, that’s the biggest revenue shock government, state or federal, has experienced in Australia since the Great Depression of the 1930s.”
Immediately following the mid-year update, the government enacted a recruitment freeze, with the only exception, police and teachers. Yesterday, WA Health Minister Kim Hames confirmed 1,163 full time equivalent positions would need to go in the Health Service in the coming months.
The latest Australian Bureau of Statistics labour force data for the month of November, reported a 13-year high jobless rate of 6.6 per cent for WA.
According to SQM Research, the rental vacancy rate for Perth is now 3.9 per cent in November, up from sub 1 per cent just three years ago. The rising vacancy rate has been a joy for renters who have seen rents fall 8.5 per cent for houses and 8.1 per cent for units over the past year.
Realmark executive director John Percudani told News Limited, “Vacancy rates have been enormous and rental adjustments have been huge and that’s because so much of the stock has flown into the rental market at a time when the market is obviously diminished, people who weren’t able to sell for the price they wanted moved their homes into the rental market”
Accurate statistics on residential property prices are hard to come by. The ABS show prices have fallen 3.41 per cent in the June and September quarters. More timely data from RP Data suggest prices have fallen 4.9 per cent and outgoing National Australia Bank chairman, Michael Chaney, has been quoted for saying “The housing market here has fallen almost 10 per cent in the last year and is pretty soft.”
But nowhere has the pain been more felt than in the mining towns.
Investors who didn’t get the memo that the surge in many commodity prices were based on a temporary, but significant mis-allocation of capital in China, naively sent property prices in mining towns into the Stratosphere. They are now licking their wounds.
Data compiled by SQM Research show house prices in Northern WA is down another 21.6 per cent last year, bringing the three year decline to 35.5 percent. Unit prices are down 19.0 per cent for the past year, or 34.0 per cent for the past three years.
Rapidly falling prices are not the only worries of landlords in Northern WA. Plunging rents, and high vacancies are making it difficult to repay loans taken out at the top of the bubble.
Rents for homes in the area are down 38.5 per cent for the year, and 63.1 per cent over the past three years. If you can find a tenant for your unit, asking prices are now 26.2 per cent cheaper than a year ago and 59.6 per cent than three years ago.
And remember the 1960s three-bedroom, one-bathroom fibro and iron house the ABC reported was brought for $1.3 million in 2011? The article, published in February last year, stated it was passed in at auction $360,000 and later relisted for $590,000. We can now report realestate.com.au indicates it is under offer for an undisclosed price. SQM reports Port Hedland house prices are down another 13.9 per cent last year and 40.0 per cent over the past three. Let’s hope the finance doesn’t fall though and the investor can finally put this nightmare loss to bed.
Economists who study housing bubbles and long term price trends have found, logically, house prices generally do not appreciate faster than household income, or the ability to service the mortgage/debt. In comparing markets, they often compare the change in the ratio of house prices to income and house prices to rents. In a normally functioning market, both should rise at roughly the same rate and should be flat, like in the case pre-bubble 2001. Once the bubble bursts, these ratios generally return to mean.
Based on this, it could be concluded on a price to rent basis, in September 2015, Perth houses prices were 47 per cent overvalued. On a price to income metric, it’s closer to 49 per cent. One could assume the market has quite a way further to fall.
» Perth house prices down almost 10% – Sky News, 18th December 2015.
» WA deficit blowout of $3.1b revealed in mid-year review – The ABC, 21st December 2015.
Posted in Australian Economy | 33 Comments »
According to China’s National Bureau of Statistics, real estate inventory reached 686 million square meters at the end of October, up 18 per cent from a year earlier. With the average size of an urban Chinese home 60sqm, this represents an excess of approximately 11 million unsold homes.
At the height of the GFC, Beijing instructed local governments to invest heavily in infrastructure. Unable to borrow, local governments set up LGFVs (Local Government Finance Vehicles) to invest in fixed assets and in many cases SoEs (State Owned Enterprises) to build them. The majority of the stimulus was sunk into building new cities that the western world argue lie mostly empty.
Not surprisingly, the unsustainable residential construction boom entered a downturn in 2014 with weak demand and burdening oversupply, and has failed to recover in 2015 despite the central bank cutting benchmark interest rates five times and slashing banks’ reserve ratios.
Land sales represent a large chunk of local government fiscal revenue and has plummeted 32% in the first 8 months of 2015. Many local municipalities need land sales to remain solvent.
The challenge on what to do with the vast number of new, empty homes was a topic for discussion at the three day Central Economic Working Conference, held in December.
Following the conference, it was announced rural residents relocating to urban areas will be able to register as city residents, allowing them to either purchase or rent property. China has a household registration system more commonly known as “hukou” that prevents migrant workers from purchasing property in urban areas. The government also plans to launch a low-rent public housing program, and to support rental enterprises.
Analysts are skeptical the move will fuel sufficient demand to fend of a crisis. Migrant workers simply don’t make enough to afford China’s exuberant urban house prices, let alone rent them.
The 11 million new unsold homes, don’t include the many, many more that are considered “commodity homes”. In 2010, a report indicated there were 64.5 million urban electricity meters that recorded zero electricity consumption over a 6 month period. In 2014, a survey from China’s Southwestern University of Finance and Economics found as many as 1 in 5 homes, or 49 million, in China’s urban areas are sold, but vacant. Outstanding mortgages on these vacant loans total 4.2 trillion yuan, according to the University.
As property prices have only gone up in this relatively new economy, citizens purchase empty homes as an investment or store of wealth. Many are concrete shells, that the buyer will need to fit out at a later date. Malcolm Turnbull wrote in an article for the Sydney Morning Herald in June 2010, One property analyst was very candid when asked why there were so many apparently unoccupied flats in Beijing as there were no lights on at night: “The flats are occupied. Cash is living there.”
Other homes are brought for the future, be that for their children or retirement. Some are even brought as a means to launder money. Its also been suggested that land sales are a boom for local governments, but people moving in is a burden as it starts to cost local government operating costs such as public transport and waste management. For this reason, there is an incentive to keep cities empty for as long as possible.
Turnbull went on to write:
Asset bubbles are like a Ponzi scheme – everything is fine until the cash dries up and asset prices stop rising. Like it or not we are exposed to the Chinese property bubble. The iron ore China buys from Australia is turned into steel, and most of that goes into building apartments and infrastructure. Our bauxite and alumina exports are turned into aluminium, of which about 40 per cent goes into construction in China.
So at the same time as we congratulate ourselves on escaping from the consequences of the property bust in the United States, the resources boom that underpinned our strong economic performance is itself based on another debt-fuelled property boom in China.
The Chinese construction sector is the biggest consumer of industrial metal. The slowdown in the past two years has reaped havoc for commodity prices, none more than Australia’s largest export, iron ore.
The latest Resources and Energy Quarterly from the Office of the Chief Economist, Department of Industry, Innovation and Science reports:
China’s steel consumption is estimated to have fallen by 3.5 per cent in 2015 to 714 million tonnes, following a fall of 3.3 per cent in 2014. China’s steel consumption has been heavily affected by weakness in residential construction, following a rapid increase in housing supply over the past few years. The China Academy of Social Sciences estimates there are nearly 18 million unsold apartments across China.
Given the lacklustre performance of the housing sector through 2015 and the significant amount of housing inventory still to be cleared, residential construction is not expected to be a significant driver of China’s steel consumption in 2016.
According to the report, the Department has downgraded the iron ore price for 2016 to $US41.30 a tonne.
In recent days the iron ore price has made a comeback, but analysts are confident it will be short lived. Chinese domestic buyers are bringing forward some purchases prior to seasonal supply decreases in January and February.
A poll conducted by Reuters, suggests iron ore could fall below $US30 a tonne in the next few months, forcing high cost producers to the wall.
» Chinese debt binge is fuelling a dangerous property bubble – The SMH (Malcolm Turnbull), 16th June 2010.
» Resources and Energy Quarterly, December 2015 – Office of the Chief Economist, Department of Industry, Innovation and Science, December 2015.
» China to destock housing inventory – Xinhua News Agency, 21st December 2015.
» China to destock housing inventory: key meeting – China Daily, 21st December 2015.
» China unveils new policies to help farmers buy homes in smaller cities – South China Morning Post, 10th December 2015.
Posted in Australian Economy, China, Iron Ore | 11 Comments »
After a prolonged 7 years of extremely accommodating, near-zero interest rates in the United States, the Federal Reserve has today tightened interest rates to between 0.25 and 0.5 per cent.
Today’s historic move is the first increase in almost a decade, and came as no surprise to anyone with the Fed noting, “The economic recovery has clearly come a long way.”
The Fed policy statement indicated further increases will be “gradual”. Markets are expecting four rate rises next year, the first in March and subsequent rises each quarter. Looking further, economists expect the federal funds rate to be 2.25 per cent at the end of 2017, suggesting a further four rate rises in 2017.
Posted in United States Economy | 13 Comments »
The Australian Taxation Office (ATO) is preparing to embark on an unprecedented data matching program, today asking state authorities for extensive records relating to real property from the period of 20th September 1985 to 30 June 2017.
In a notice published today in the Government Gazette, the ATO indicates “The purpose of this data matching program is to ensure that taxpayers are correctly meeting taxation and other program obligations administered by the ATO in relation to their dealings with real property. These obligations include registration, lodgment, reporting and payment responsibilities.”
The ATO will seek the following records from Rental Bond Authorities:
The ATO will also seek the following records from revenue and land titles authorities:
» ATO hunts 32yrs of foreign buyer records – Macrobusiness, 12th December 2015.
Posted in Australian Economy | 16 Comments »
Melbourne and Sydney has witnessed substantial property price falls in November as auction clearance rates took a tumble.
According to CoreLogic RP Data, Melbourne property prices fell a sizeable 3.5 per cent in November, followed by Sydney notching up a 1.4 per cent decline for the month. Australia’s two largest property markets sent the Australian index of prices in the eight capital cities down 1.5 per cent.
As we reported back in May, (“Passive foreign investment watchdog relieved of enforcement duties“) and September (“Residential property worth over $1 billion now under investigation by Foreign Investment taskforce“) new laws on Foreign investment come into force today.
In response to a question about the cash rate raised last week at the Australian Business Economists (ABE) Annual Dinner, RBA governor said “We’ve got Christmas. We should just chill out, come back and see what the data says.”
True to his word, the Reserve Bank chilled out today leaving the official cash rate on hold at 2 per cent.
Some of the data Stevens refers to has been weak.
Last Thursday, the Australian Bureau of Statistics released business investment spending for the September quarter down 9.2 per cent. The annual result was a 20 per cent fall. The quarterly figure was the worst on record for the 28 year-old survey, with CAPEX down across the board, not just mining. Building and construction was down 9.8 per cent, and services and hospitality down 10 per cent. There had been hope, the services sector would pick up some of the slack from the mining downturn.
Market Economics managing director Stephen Koukoulas told the ABC, the figures were “horrid.”
“Across the board, it is pretty grim and there’s no evidence that a pick-up in business confidence has translated into business investment,”
Stevens concluded his ABE annual dinner speech with what he called “My final, fairly uncontroversial predictions:”
The business cycle will continue. There will be economic downturns from time to time. If one of those turns out to be a big one, it will be very new experience for quite a lot of Australians. Close to half the workforce has never seen really high, nationwide unemployment. A lot of people in business have, I suspect, not seen how tough conditions can become when virtually every industry and region is contracting. That they have not seen this is a good thing – in the sense that it results from the fact that we have not a really serious downturn for a long time now. But if one comes, it will be a shock.
» RBA’s Glenn Stevens planning on a ‘chill out’ Christmas despite nit-pickers – The Sydney Morning Herald, 26th November 2015.
» Business investment spending down 20 per cent, ‘grim’ across all sectors – The ABC, 26th November 2015.
Posted in Australian Economy, Australian Housing, Monetary Policy | 38 Comments »
Australia’s investor led housing bubble could be worst that first thought.
The Reserve Bank deputy governor, Dr Philip Lowe, today revealed the central bank has been concerned about the banks significant upwards revision on investor mortgages.
Reviews over the past 6 months has found $50 billion in investor mortgages incorrectly classified as the banking regulator implements a 10 percent speed limit on growth of investor mortgages.
The ten percent increase revises upwards the portion of investor loans to 40 per cent, from the 35 per cent originally reported.
Dr Lowe said, “As lenders have looked more closely, what they have found has surprised and, to some extent, concerned us,”
The revelations today come as Barclays indicate Australia’s house prices are 22 per cent overvalued and will experience a “long period of broad stagnation.”
» Australian banks understated the value of investor loans by $50 billion: RBA – The ABC, 5th November 2015.
» RBA ‘surprised’ by banks’ $50b home loan error
» House prices set for long period of ‘stagnation’: Barclays – The Sydney Morning Herald, 5th November 2015.
Posted in Australian Housing, Banking Regulation | 101 Comments »
Foreign Chinese buyers may now be priced out of the booming Sydney and Melbourne property markets according to Real Estate agency PRD Nationwide.
In recent weeks, market players have noticed a gradual pull out of Chinese buyers and are racking their brains to understand why. The worrying pull out for property proponents, have led to a cooling market.
The PRD Nationwide Australia Economic and Property Report shoots down the notion that all foreign Chinese buyers are uber wealthy.
Asti Diaswati, PRD Nationwide’s national research manager told the Domain, “There’s this myth that foreign investors are all ultra-net worth, super rich and can afford penthouses, which is not the case,”
“I would say at least half to 60 per cent of foreign investors coming are ‘ordinary’ in the sense that they have a $500,000-to-$600,000 budget.”
The Sydney property market has seen annual double-digit gains in recent years and with a median house price now in-excess of $1 million, it is the world’s third most expensive property market according to investment bank UBS. Only Hong Kong and London now have more expensive property markets.
Real estate agents are now pondering who is left to sell too, with more and more auctions passed in. Australians have long been priced out of the Sydney market, with the Housing Industry of Australia suggesting last week that households now need to earn 1.74 times the average full time adult wage to meet loan repayments, despite interest rates being at record lows.
» Even foreign investors are struggling to afford Sydney prices – The Domain, 2nd November 2015.
» Sydney placed on global housing bubble risk list – Bloomberg, 1st November 2015.
» London, Hong Kong most at risk of housing bubble, UBS says – The Financial Review, 30th October 2015.
» It now costs $4,000 A MONTH to pay the mortgage on an average house in Sydney, and affordability is plunging across the country… – The Daily Mail, Australia, 31st October 2015.
Posted in Australian Housing, Melbourne Property Bubble, Sydney Housing Bubble | 33 Comments »
As expected, the Commonwealth Bank is today the second bank to hike interest rates out of cycle, notching rates up 15 basis points. ANZ and NAB are expected to follow.
As did Westpac, the CBA blamed the rates decision on increased capital and regulatory requirements. (‘Banking regulator announces tighter capital adequacy requirements for residential mortgages’ – 21st July 2015)
On Monday, the government endorsed the banking regulator’s action in making the Australian banking system “unquestionably strong,” a recommendation from the Murray Financial System Inquiry.
Today Wayne Byres, chairman of Australia’s banking regulator – the Australian Prudential Regulation Authority, remarked some lending standards by the big banks were at “horribly low levels” and had lacked “common sense”. He said “With the benefit of hindsight, obviously we wish we got on to this a bit sooner, but we are where we are.”
It is also understood, Westpac has once again written to brokers informing them of a further crack down on loans to foreign property investors, effective next Monday. The bank will scrutinise visa and foreign-currency income, while abolishing low doc loans for immigrant mortgages. In July, the bank had written to brokers who were arranging a high percentage of mortgages to non-residents, informing them that applications must have an Australian residential address.
» Government backs APRA action on banks – The Sydney Morning Herald, 20th October 2015.
» Bank of Melbourne latest to crack down on foreign lending for property”> – The Australian Financial Review, 21st October 2015.
» Westpac tightens lending for foreign property investors – The Australia Financial Review, 26th July 2015.
Posted in Australian Housing, Banking Regulation, China, Melbourne Property Bubble, Sydney Housing Bubble | 56 Comments »
Westpac will hike mortgage rates by 20 basis points on the 20th of November, and in a win for savers, increase term deposit rates by 25 basis points come Friday.
Australia’s other big banks could be expected to follow suit.
Westpac has blamed the rates decision on increased capital and regulatory requirements (‘Banking regulator announces tighter capital adequacy requirements for residential mortgages’ – 21st July 2015), while also announcing it will hit shareholders up for $3.5 billion to further increase CET1 capital. This follows ANZ’s announcement last week, indicating it will sell Esanda for $8.1 billion in a move also designed to bolster capital.
In recent months, most of Australia’s big banks have hiked mortgage rates for investors to appease the banking regulator and its directive to keep investor mortgage growth under 10 per cent.
Housing finance figures for August, released on Friday, showed dubious statistics suggesting a decline in investor mortgages of 0.4 per cent, while approvals to owner occupiers grew 6.1 per cent. The reversal of growth between investors and owner occupiers, coinciding at a time when banks were hiking mortgage rates for investors, suggested many investor loans may have been incorrectly, but intentionally classified as owner-occupier.
Westpac’s move today to equally hike both investor and owner-occupier will remove this potential incentive to reclassify loans.
Westpac was also hit by inflexibility with its computer system in July when trying to classify investor and owner-occupier loans (‘NAB hikes IO loans by 29 basis points, Westpac announces corporate note issue and hiring freeze while they fix computer issues – 27th July 2015.) A Westpac spokesperson at the time said, “Given we haven’t had differential pricing across the mortgage book for a number of years, if this was to be introduced we must ensure a smooth transition for affected customers.” Westpac later announced in August a hike of 27 basis points on investor loans.
A slowing China and plunging commodity prices has caused a spike in credit default swaps spreads for our big banks to the highest level since September 2013, putting upwards pressure on banks wholesale funding costs. Australia’s banking regulator, APRA, has expressed concerns about our banks reliance on volatile overseas credit markets and have been prodding banks to increase the amount of money raised domestically by term deposits. Westpac’s move today to reward term deposit savers could be seen as an early response to the regulator’s pleads.
» Westpac to raise home loan interest rates to protect against future financial crises – The ABC, 14th October 2015.
» Owner-occupiers overtake investors in home loan growth – The ABC, 9th October 2015.
» Bank risk spreads at two-year highs on China fears – The Sydney Morning Herald, 5th October 2015.
Posted in Australian Housing, Banking Regulation | 37 Comments »
Fresh data released today from the China Customs Bureau show imports to China declined 17.7 per cent in the year to September. Exports feared better, falling 1.1 per cent for the same period leading to predictions, GDP numbers to be released next week will be the weakest quarterly growth rate in six years.
Despite Australia’s over-reliance on China, it is actually our property bubble that poses the bigger risk to the economy, according to a Bank of America Merrill Lynch economist.
Economist Alex Joiner from Bank of America Merrill Lynch warns Australia’s dwelling price to income ratios are at levels “never before observed” while household debt to GDP is at a “record high.”
The comments follow ABS figures out Friday showing the average NSW home loan jumped $78,100 in a year due to accelerated price growth in Sydney. The rate of borrowing is outpacing growth in dwelling prices suggesting Sydneysiders are using the ultra low interest rate environment to borrow substantially more.
In boom town Victoria, the trend is same, as average home loans surged $61,700 up almost 20 percent and almost double the 10.6 percent increase in dwelling prices over the same period.
According to CommSec, the average national new owner occupied mortgage grew 15.4 per cent in the year, the fastest annual pace in 12 years. CommSec economist Savanth Sebastian remarked, “Not only is the size of the average home loan holding at a record high, but it is growing at the fastest pace in 12 years,”
Macquarie Bank economists predict Australian house prices will decline 7.5 per cent from March next year, impacting the broader economy. Recent ABS retail sales data has been strong in the housing boom states driven by the wealth effect. Along with banks Commonwealth and NAB, Macquarie expects Harvey Norman, CSR and JB HiFi to be hit from declining home prices.
» Sydney housing prices falling because of greater supply, RBA deputy governor Philip Lowe says – The ABC, 12th October 2015.
» Housing bust now the greatest recession risk, say investment banks – The Sydney Morning Herald, 13th October 2015.
» Average NSW home loan jumps $78,100 in a year – The Sydney Morning Herald, 9th October 2015.
» CBA and NAB to cop the brunt of falling house prices, says Macquarie – The Sydney Morning Herald, 13th October 2015.
Posted in Australian Economy, Australian Housing, China, Melbourne Property Bubble, Sydney Housing Bubble | 5 Comments »
An oversupply of rental properties and slow population growth has caused September rental growth to slow to an all time record low, according to CoreLogic RP Data.
At a national level, September recorded zero rental growth, failing to keep up with inflation.
Melbourne and Hobart posted slight gains of 0.3 per cent and 0.1 per cent.
Sydney was flat, while rents in Adelaide, Brisbane and Canberra all fell 0.2 per cent. Struggling commodities hubs, Perth and Darwin saw rents plunge 0.8 and 1.4 per cent respectively.
The fall in rents follow data from the Australian Bureau of Statistics (ABS) of a marked slow down in population growth for the March quarter. According to the ABS, population growth is now running at the slowest rate in a decade, following a 16 per cent fall in immigration rates over the year to March. Western Australia recorded a 71 per cent fall in net overseas migration in the past two years to March as job opportunities in the once booming resource sector dry up.
Slowing population growth is expected to be a challenge to the housing market as we build more homes than are actually needed.
» Rents fall across most cities in September – The ABC, 8th October 2015.
» Australian rents just grew at the slowest pace on record – Business Insider, 8th October 2015.
» Slowing population growth presents economic, housing market challenge – The ABC, 24th September 2015.
Posted in Australian Housing | 27 Comments »
NAB has started to restrict lending to portions of the Sydney property bubble that are exhibiting characteristics that may indicate future deterioration in credit risk. It has decided to cap the maximum loan to value ratio (LVR) in these higher risk suburbs (shown below) to 80 per cent.
2000 Sydney CBD
2008 Chippendale, Darlington
2017 Waterloo, Zetland
2019 Banksmeadow, Botany
2037 Forest Lodge, Glebe
2067 Chatswood, Chatswood West
2112 Denistone East, Putney, Ryde
2113 East Ryde, Macquarie Park, North Ryde
2127 Newington, Sydney Olympic Park, Wentworth Point
2140 Homebush, Homebush West
2141 Barala, Lidcombe, Rockwood
2142 Camellia, Clyde, Granville, Holroyd, Rosehill, South Granville
2146 Toongabbie, Old Toongabbie
2150 Harris Park, Parramatta
2151 North Rocks, North Parramatta
2153 Baulkham Hills, Bella Vista, Winston Hills
2166 Cabramatta, Cabramatta West, Canley Vale/Heights, Lansvale
2168 Ashcroft, Busby, Cartwright, Green Valley
2195 Lakemba, Wiley Park
2205 Arncliffe, Turrella, Wolli Creek
2209 Beverly Hills, Narwee
2210 Lagarno, Peakhurst, Peakhurst Heights, Riverwood
2211 Padstow, Padstow Heights
2220 Hurstville, Hurstville Grove
2566 Varroville, Bow Bowing, Minto, Raby, St Andrews
2767 Bungarribee, Doonside, Woodcroft
2768 Glenwood, Parklea, Stanhope Gardens
2769 The Ponds
The cap has been applied to all new loans written since the 18th September 2015.
» ‘Restricted postcodes’: NAB names suburbs where credit risk getting worse – The Sydney Morning Herald, 28th September 2015.
» NAB puts 40 postcodes on credit watchlist – The Sydney Morning Herald, 18th August 2015
Posted in Sydney Housing Bubble | 58 Comments »
Young foreign students on visas, with no income and who have purchased $5 million properties are just some of the 500 potentially illegal foreign real estate transactions currently under investigation by the Australian government. Federal Treasurer, Joe Hockey, today provided an update of the operations from the 50 strong task-force, flanked by ATO commissioner Chris Jordan. Mr Jordan indicated many of the investigations surround student owners.
As we have previously reported (Illegal foreign buyers on notice, 6 homes purchased illegally to be sold, a further 462 under investigation), a new task force has been set up to investigate and prosecute those undertaking and assisting with illegal residential property transactions.
In Australia, it is illegal for foreigners to purchase existing property. They can, however, purchase new property in a move designed to increase housing stock.
Hockey said the “The purchase prices of the properties range in value from $265,000 to $8.1 million.”
He has issued another five divestment orders, bringing the total to twelve.
“They now have 12 months to sell the properties, rather than the normal three month period, and will not be referred for criminal prosecution.” remarked Hockey. Illegal buyers have an amnesty until the end of November.
Illegal transactions are thought to be driving a surge in house prices in Sydney and Melbourne – area’s preferred by the Chinese while potentially undermining the banking sector and economic stability. Both Sydney and Melbourne residential property markets are widely considered to be in a bubble.
APRA Chairman Wayne Byres, in a speech today indicated he was happy with the big bank’s progress on recapitalising and strengthening their balance sheets saying, “risk-based capital ratios are as high as they have ever been.”
Last year, the banking regulator found Australia’s big banks would be rather vulnerable from a housing crash (‘Have the Big 4 just flunked APRA’s stress test?‘) and ordered them to increase capital.
Commonwealth Bank has been the latest bank to finish a capital raising. It has successfully raised $5.1 billion despite last Friday announcing its retail entitlement offer fell short $1.5 billion as investors start to turn their backs on the banks.
» STUDENTS IN $5 MILLION PADS: The probe on foreign home owners is now a billion-dollar project – Business Insider, 16th September 2015.
» Foreign buyers’ probe nets 500 properties worth $1b – The Australian Financial Review, 16th September 2015.
» APRA satisfied by multi-billion-dollar bank capital raisings – The ABC, 16th September 2015.
» Commonwealth Bank retail offer falls short by half – The Australian, 11th September 2015.
Posted in Australian Housing, Banking Regulation, Foreign Investment Review Board, Melbourne Property Bubble, Sydney Housing Bubble | 33 Comments »
Illegal foreign buyers on notice, 6 homes purchased illegally to be sold, a further 462 under investigationWritten by admin on August 9, 2015 – 7:21 pm
Six homes brought illegally by foreigners will be sold and a further 462 sales are under investigation with the Treasurer, Joe Hockey, telling Australians more will be forced to sell soon.
In May, we reported the enforcement of legislation surrounding real estate sales to foreigners would be transferred to the Australian Tax Office and harsher penalties be introduced for both foreigners who flout the laws and real estate agents, developers and third parties assisting in the transaction. (“Passive foreign investment watchdog relieved of enforcement duties“)
Foreign buyers are free to purchase new homes that increase housing stock in Australia, but are banned from purchasing existing homes. In recent years, a flood of foreigners have been breaking the laws with little repercussions from the overwhelmed and under resourced, Foreign Investment Review Board.
Under the new legislation suggested to be introduced on the 1st of November 2015, owners who have illegally purchased property in Australia will be given an government amnesty and will not be prosecuted, if they voluntarily come forward prior to the 1st November. The announcement of the 6 homes to be sold over the weekend fall under this amnesty.
In just three months, the Australian Tax Office, The Foreign Investment Review Board, the Department of Immigration and AUSTRAC (The Australian Transaction Reports and Analysis Center with regulatory responsibility for anti-money laundering and counter-terrorism financing) have been busy uncovering some 462 illegal transactions.
Fears are growing that the army of foreigner buyers are destabilising the Australian economy, creating troubling housing bubbles in Sydney and Melbourne. Those who are buying existing stock, are pushing up prices at break neck speed and pricing Australian’s out of the market.
Foreigners, predominately Chinese, like the Sydney and Melbourne property markets with apartments and high-rise living akin to their home country. The latest CoreLogic RP-Data revealed Melbourne home prices shot up 4.9 per cent in just the single month of July. Just as dangerous, Sydney home prices surged 3.3 percent for the month.
The Sydney and Melbourne property bubbles have regulators struggling to gain control. The banking regulator has forced banks to slow down their residential investor lending, re-weight their mortgage books and increase loss absorbing capital to help protect the banks in the downturn.
ANZ was the last bank forced to increase capital, announcing on Thursday its intention to raise 2.5 billion from institutional shareholders and a further $500 million from retail shareholders. The bank’s share price was smashed on Friday, when it resumed trading, plunging 8.5 percent in morning trade to finish the day 7.1 per cent down.
While the capital raising won’t be a surprise for our readers (‘Banking regulator announces tighter capital adequacy requirements for residential mortgages), the move by ANZ appeared to catch investors off-guard sending the Australian Bourse down 2.4 per cent on Friday, the biggest fall since May 2012.
All eyes are now on the Commonwealth Bank of Australia who is set to report this week. Analysts suggest the bank is falling behind its peers in terms of capital buffers and could be forced this week to raise $5 billion, some suggesting as much as $7 billion.
» Investigations into foreign investors allegedly illegally buying Australian homes more than doubles – The ABC, 8th August 2015.
» Six foreign-owned properties to sell with more to come: Hockey – The Australian Financial Review, 9th August 2015.
» CBA tipped to raise capital amid $9.1b full-year profit forecast – The Sydney Morning Herald, 9th August 2015.
» Home prices surge, Melbourne and Sydney lead gains again – The ABC, 3rd August 2015.
Posted in Australian Economy, Australian Housing, Banking Regulation, Foreign Investment Review Board, Melbourne Property Bubble, Sydney Housing Bubble | 82 Comments »
Westpac had slashed the maximum loan to value ratio (LVR) for residential property loans taken out by self managed super funds (SMSF) to 70 per cent.
Earlier last month, Westpac lowered the maximum LVR for all property investors to just 80 per cent. On Friday, Westpac also announced it will increase investor mortgage rates by 27 basis points to appease the banking regulator.
In May, NAB quietly exited residential mortgage lending to the SMSF market, choosing no longer to lend to this higher risk limited recourse segment.
Chris Foster-Ramsay, managing director of Capital Home Loans told the Australian Financial Review, “Doors are being shut on SMSF lending for the immediate future. Clearly, someone can foresee a problem.”
The problem the banks foresee is irrational investors who have paid too much for properties in a heated market and many who may not be able to service the loan due to plunging rents. As SMSF loans are limited recourse, there is little to no collateral for the bank.
The Australian Financial Review suggests some off the plan buyers are finding out at settlement their properties are valued at 20 per cent less than what they paid, and rents are 20 per cent less than what agents had spruiked. The paper cited one example, Scott Thornton who was forced to sell one of his apartments for a $150,000 loss after two years because he couldn’t find a tenant required to service his loan.
A surge in property investors to record levels has seen an increase in the supply of rentals, leading to falling rents and vacant investment properties. Yields are also being eroded as many investors simply paid too much for the property in the surging market.
» Westpac slashes loan ratios on SMSF investment properties – 31st July 2015.
Posted in Australian Housing, Banking Regulation, Melbourne Property Bubble, Sydney Housing Bubble | 17 Comments »
Professor Vernon Smith, an expert on housing bubbles and recipient of a Nobel prize for Economics for his work, told the Australian Financial Review earlier this week, “You have a pretty good [property] bubble in Sydney and Melbourne.”
“It is hard to believe it is very sustainable.”
On Thursday, Professor Smith addressed a Macquarie Graduate School of Management dinner on global house prices.
Data to be released on Monday by CoreLogic RP Data will confirm Smith’s views. The Australian reports CoreLogic RP Data will show Melbourne house prices surged 4.8 per cent in July, up from 2.9 percent recorded in June. If the 4.8 per cent result were annualised, it would top 57 per cent!
Sydney house prices are expected to rise 3.2 percent for the month.
“It is amazing how people get carried away in the bubble,” Professor Smith told the AFR. “Then all of a sudden it’s over and they are petrified.”
The out of control house price growth in Australia has the banking regulator concerned about the inevitable crash. Fearing possible bank collapses when the bubble bursts, APRA has instructed our big banks must bolster capital.
In recent weeks the regulator has forced banks to increase mortgage rates for investors getting carried away in the bubble, in a bid to slow the dangerous market. The ANZ and CBA were the first to announce rate increases of 27 basis points for investor mortgages. NAB has increased rates on interest only loans by 29 basis points, while Westpac – plagued by IT problems, only today announced investor interest rates will increase by 27 basis points.
For AMP, irrational property investors are just too risky. It has decided the cease lending to property investors altogether, effective immediately while it hikes rates for existing investors by 47 basis points on the 7th September.
» Housing bubble could burn investors, warns Nobel Prize-winning economist – The ABC, 30th July 2015.
» ‘You have a pretty good bubble in Sydney and Melbourne’: Nobel-winning economist warns property buyers not to get ‘carried away’ as AMP Bank cracks down on investment loans – The Daily Mail, 30th July 2015.
» Westpac jacks up interest rates for housing investors – Sydney Morning Herald, 31st July 2015.
» AMP slaps ban on loans to property investors as expert sees end to housing bubble – The ABC, 29th July 2015.
Posted in Banking Regulation, Melbourne Property Bubble, Sydney Housing Bubble | 24 Comments »
AMP has today announced a freeze on lending to property investors while existing property investors can expect a 47 basis point increase in mortgage rates from the 7th September 2015.
AMP Limited acknowledges the changes are in response to APRA’s crackdown on investor housing loan growth and will review the ban at the end of this year.
» AMP slaps ban on loans to property investors as expert sees end to housing bubble – The ABC, 29th July 2015.
» AMP Bank stops lending to housing investors, jacks up rates – The Sydney Morning Herald, 29th July 2015.
Posted in Australian Housing, Banking Regulation | 5 Comments »
NAB hikes IO loans by 29 basis points, Westpac announces corporate note issue and hiring freeze while they fix computer issuesWritten by admin on July 27, 2015 – 9:04 pm
Following moves last week by the ANZ and CBA to hike mortgage rates on investor loans by 27 basis points, the NAB has today announced it will hike rates on interest-only loans by 29 basis points, a move also designed to slow down investor housing lending growth.
Significant growth in investor-only loans has been raising concern among financial regulators as investors pile into interest-only loans to take advantage of ever rising home prices. APRA statistics for the March 2015 quarter found interest-only loans made up 42.3 per cent of all new loans issued.
While the move by NAB will target both owner occupiers and investors using interest-only loans, NAB said interest-only loans were “predominant structure for investors.”
Westpac has today announced a $750 million corporate note issue to help bolster capital reserves as news spread that Westpac had last week put in place a hiring freeze for all non-critical roles, initially said to last three months.
According to a Herald Sun article, Westpac was unable to follow ANZ and CBA, jacking up investor only loans due to a deficiency in its computer systems. It is understood Westpac technical staff are checking back-office systems to ensure owner-occupier and investor customer information is correct.
A Westpac spokesperson told News Limited, “Given we haven’t had differential pricing across the mortgage book for a number of years, if this was to be introduced we must ensure a smooth transition for affected customers,”
This could suggest a rate hike is still coming for property investors financed through Westpac.
» Will Westpac follow the pack and hike investment home loan rates? Computer says ‘not yet’ – The Herald Sun, 27th July 2015.
» Westpac confirms three-month hiring freeze – Business Insider Australia, 27th July 2015.
» NAB raises rates on interest-only home loans – Sydney Morning Herald, 27th July 2015.
Posted in Australian Housing, Banking Regulation | 12 Comments »