Archive for April, 2012
While property experts gather around to corroborate stories of a recovering property market, data released today from the Reserve Bank show housing credit rose just 0.4 percent in March to bring the yearly growth rate to 5.3 percent. Housing growth has been stuck firmly at an annual rate of 5.3 percent since January and at the lowest ever recorded figure since records started 35 years ago.
Housing credit growth had been running at double digits until the Global Financial Crisis, but excessively high household debt levels have caused household’s to re-adjust their appetite for debt in a more uncertain climate.
This reluctance to take on debt is also observed in housing finance commitments that is currently hovering around levels last seen in the late 1990s.
The housing industry is feeling the full effects of low housing credit growth. Figures released from the Housing Industry Association today show new home sales are at 1994 levels, falling 9.4 percent seasonally adjusted, in March 2012.
After annual CPI came in at only 1.6 percent last week, the Reserve Bank of Australia is almost certain to cut the official cash rate tomorrow. But with housing credit growth at levels not seen in decades, it is hard to see any resulting housing recovery.
Posted in Australian Economy, Australian Housing | 3 Comments »
Transparency surrounding real estate investment by foreigners has returned with the Foreign Investment Review Board Annual Report 2010-11 showing 9771 real estate investments worth $41.5 billion was approved in 2010-11.
In December 2008, the Rudd Government announced a change to legislation, it claimed, was designed to ‘streamline’ some of the administrative requirements for the Foreign Investment Review Board (FIRB). As part of these changes, temporary residents could purchase Real Estate in Australia without having to report or gain approval from the FIRB and would allow the FIRB to concentrate on larger issues in the ‘National Interest’.
As you can see from Chart 2.1 extracted from the Foreign Investment Review Board Annual Report 2010-11, Real Estate transactions do make up the majority of the applications considered by the FIRB, but many questioned the timing of the announcement. It was at the height of the GFC, and two months after the announcement of the First Home Owners’ Boost, designed to help prop up Australia’s Real Estate sector. House prices had fallen 4.7 percent. Opening up the floodgates to foreign temporary residents could be seen as a further measure to help provide extra demand and keep the housing market afloat.
By March 2010, the media was flooded with articles on Australian’s being outbid by an army of Chinese residents, effectively pricing Australian’s out of their own housing market. But the ‘streamlining of administrative requirements’ actually meant no records were kept, or more specifically it would seem that these foreign temporary residents no longer needed to lodge applications with the FIRB. There was public outcry and no real data to support just how big or small this issue actually was.
The outcry had grown so intense, that on the 24th April 2010 the government buckled and a tightening of foreign investment rules relating to residential property was announced, complete with a package of new civil penalties, compliance, monitoring and enforcement measures. The government even went to lengths to set up a 1800 hot-line for residents to report suspicious property buyers and help calm a heated public.
The press release by the former Assistant Treasurer, Senator the Hon Nick Sherry said “The Rudd Government is acting to make sure that investment in Australian real estate by temporary residents and foreign non-residents, is within the law, meets community expectations and doesn’t place pressure on housing availability for Australians.”
According to the FIRB Annual Report 2010-11, “As of 24 April 2010, temporary residents residing in Australia are no longer exempted from notification of proposed acquisitions of established residential real estate for their own residence, established residential real estate for the purposes of redevelopment, new residential real estate and vacant residential land. Temporary residents were previously exempt from April 2009 under the changes announced in December 2008. ”
The Financial Year 2010/11 is the first full year temporary residents must apply to the FIRB and where records have been kept. It may never be known just how many temporary residents purchased Australian Real Estate in the years 2008/09 and 2009/10.
» Foreign Investment Review Board Annual Report 2010-11 – Foreign Investment Review Board, 20th April 2012.
» Government Tightens Foreign Investment Rules for Residential Housing – Assistant Treasurer Nick Sherry, 24th April 2010.
» Australian Federal Government gets tough on foreign ownership rules – News Limited, 24th April 2010
» Real Estate Investment by Foreign Residents : Top Secret – Who Crashed the Economy, 4th January 2012.
» Australia for Sale – Who Crashed the Economy, 27th March 2010.
» Foreign investment is overheating our property market – The Punch, 10th April 2010.
» Secret government business – The Age, 30th December 2011.
Posted in Australian Economy, Australian Housing, Foreign Investment Review Board | 5 Comments »
In RP Data’s April update on the Australian housing market, it believes the market is stabilising on the back of interest rate cuts late last year. You can watch the full update here.
The update features a graph showing Monthly Transaction Volumes and gives the following commentary, “Our estimate of transaction volumes have been updated to January, however with the seasonally slowdown in market conditions over both January and December, it’s difficult to gauge how market demand has changed this year.”
While RD Data is correct in suggesting the months of December and January are historically slow due to Christmas, it is interesting to note January 2012 transaction volumes are down significantly from January 2011. It will be interesting to watch this space to see what volumes do in the coming months. RP data said leading up to December it was clear buyer activity had stabilised, and “we would expect the number of sales to increase on the back of lower interest rates.”
The Housing Industry Association (HIA) and RP Data yesterday jointly released its April update to the HIA-RP Data Residential Land Report. Over the year to December 2011, the number of residential land transactions have fallen 27 percent, and according to the report has hit a fresh low. HIA Chief Economist, Harley Dale was quoted in the report saying “The volume of residential land sales has been below the previous trough set during the GFC for five consecutive quarters now.”
“Over the five quarters to December last year land sales ran at a volume 40 per cent lower than their long term average.”
Tim Lawless added his belief that the vacant land market conditions are the weakest in more than decade.
Switching back to the RP Data’s April update, Tim Lawless flicks up the following chart on Housing Finance Commitments, but I fail to hear any mention on it in his commentary.
It is the same graph we presented in our last post and shows mortgage approvals are at levels similar to the mid 1990’s. As the majority of buyers need to get a loan for their property purchases, the downwards trend correlates with transactions.
The expansion of credit contributed to stellar house price growth throughout much of the last decade and quickly ground to a halt during the GFC as consumers became more debt and risk adverse. The peak in January 2010 was due to Rudd’s First Home Buyers’ Boost, a short-term stimulus according to Treasury that was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market.
This federal stimulus ended in December 2009. Some state based stamp duty exemptions ended in December last year. House prices have been falling for over a year and it’s hard to see any driver outside of more stimulus or potentially a significant cut in lending rates that would contribute to a recovery. Near zero interest rates in many other countries have failed to halt the decline in house prices as the burden of high household debt scars potential borrowers.
Based on data from housing corrections in other countries, falling transaction volumes is the canary in a coal mine and leads a decline in prices.
» Australian Housing Market Update – April 2012 – RP Data, 12th April 2012.
» Vacant land market weakest in more than a decade – RP research blog, 20th April 2012.
Posted in Australian Economy, Australian Housing | 2 Comments »
“Paying your mortgage down before the bust is the most effective way of avoiding getting into negative equity once housing prices start to fall.”
This is the statement Luci Ellis, Head of the RBA’s Financial Stability Department made last week in her address to the Federal Reserve Bank of Atlanta 2012 Financial Markets Conference about the US housing ‘meltdown’. According to a graph shown during her address, the number of Australian households ahead with their mortgage repayments greatly exceed that of America over the last decade. But, it wasn’t shown by how much.
Back home, Australian’s appear to be heeding this advice. Household’s had a poor record of savings for most of the last decade, in some cases spending more than earned in the quest for the great Australian dream. The twelve months immediately following the collapse of Lehman Brothers saw witness to a surge in the household net savings ratio to around the 10 percent mark, and has remained at this level ever since. It is considered a reasonable portion of these savings have been ploughed into mortgage repayments as the attitudes towards debt change following the GFC and the US housing bust.
But with housing prices falling for over a year now, it would appear another group of Australian’s have found an even more effective measure to avoid getting into negative equity. They have decided not to leverage up into an asset bubble in the first place.
Home loan approvals for owner occupied dwellings in February is down another 2.5 percent, seasonally adjusted, according to the Australian Bureau of Statistics. This comes after a little rise last year as some first home buyers’ locked in state based stamp duty exemptions before they expired at the end of the year.
A look at home loan approvals excluding refinancing show the market is still the doldrums with approvals hovering at levels experienced during the late 1990’s. A sharp roll-off started in 2008 as the GFC took hold and reached its trough as the Rudd Government announced the First Home Owners’ Boost and the RBA started slashing interest rates. This buoyed the market until the grant ceased at the end of 2009.
With the debt adverse consumer who chooses to sit sensibly on the sidelines or with others who simply cannot access a mortgage at today’s home prices, it is unclear what, if anything, will plug the decline in house prices. Housing grants and stimulus appear to work, but they are not sustainable or in the the best interests of a healthy market.
» Moderator’s Opening Remarks for Panel Discussion on Mortgage Finance – Luci Ellis, RBA, 11th April 2012.
» 5609.0 – Housing Finance, Australia, Feb 2012 – Australian Bureau of Statistics, 11th April 2012.
Posted in Australian Economy, Australian Housing | 12 Comments »
Measures by China’s central government to cool its once bubbling property market is continuing to yield results with figures from the National Bureau of Statistics (NBS) showing a 17.5 percent drop in the number of home sales in the first quarter this year. According to the bureau, new house prices in 45 out of 70 cities declined in February, while 21 cities reported no change in price. The Beijing Real Estate Association reports prices for new residential houses in Beijing are down 20.7 percent yoy.
China has just reported the slowest economic growth in three years with GDP falling to an annualised growth of 8.1 percent for the first three months of this calendar year.
Late last year, under the headline “Chinese prop up property market,” the Australian Financial Review suggested the Chinese were the only thing keeping Harry Triguboff’s “cement mixers turning”.
This week at the opening of Meriton’s Vantage apartment block in Rhodes NSW, Mr Triguboff said interest rates where too high, demanding the RBA’s governor Glenn Stevens to drop rates, “He has to drop. I can’t believe it’s that high.”
He told the Australian Financial Review, “It got to a stage [last year] where I had 85% of purchasers who were Chinese, and now it’s down to 65%.”
“We’re very happy with Chinese coming here, but we must have our own.”
If we assume there hasn’t been a surge in domestic buyers as interest rates are apparently too high (not the price and leverage required to purchase one), then the figures can only mean one thing. Fewer Chinese are buying Harry’s apartments. Could falling house prices back in mainland China, have the Chinese questioning if property always goes up?
In late 2008, the Rudd Government made administrative changes to Foreign Investment Review Board (FIRB) legislation which could be seen as one measure to encourage foreign buyers to purchase our property and help keep demand up for our ailing property market.
If this is the case, it could be another lifeline gone in the who wants to be a property millionaire game show.
» China Property-Sales Drop Shows Risk of Hard Landing – Bloomberg, 14th April 2012.
» Home prices in most cities stop growing in Feb – China Daily, 18th March 2012.
» Beijing housing prices 21% down in Q1 – China Daily, 9th March 2012.
» Real Estate Investment by Foreign Residents : Top Secret – Who crashed the economy?, 4th January 2012.
Posted in Australian Economy, Australian Housing, China | 10 Comments »
As housing affordability hits crisis point in Sydney, NSW Opposition Leader John Robertson has called for a debate on the effect negative gearing is playing on housing affordability.
A report released last week from the McKell Institute showed seventy precent of under 35s can no longer afford to buy a home.
He told Sky News he has yet to discuss the idea with the Gillard government, but we believe further support should be welcome. This time last year, reports surfaced that the Gillard government was in talks with Senior Federal Labor figures and unions about winding back negative gearing as one way to tackle housing affordability.
A two day tax forum in October last year re-ignited the debate where Saul Eslake, an economist for the Grattan Institute said our tax system was “riddled” with loopholes, taking aim at negative gearing. “There is no country in the world that allows negative gearing as generously as the Australian tax system does” said Eslake.
Negative gearing is thought to be one aspect of Australia’s flawed tax system which has caused a large mis-allocation of capital to be directed towards the unproductive residential property sector. On many metrics, Australia’s house prices today are more unaffordable than at the peak of the American housing bubble.
The much ignored Ken Henry tax review in 2009 warned elements of our tax could affect macroeconomic stability. It stated “The existing tax system is also likely to encourage excessive leveraging in pursuit of tax-preferred income. Where capital inflow is used to finance less productive assets, this can also affect long term macroeconomic stability. In this regard, recommendations to provide a more neutral tax treatment of savings, to reduce the benefits from negative gearing and eventually abolish stamp duties on housing would also help improve macroeconomic stability.”
The report recommended a more uniform savings income discount be applied across most asset classes to prevent tax distortions created from negative gearing.
Figures from the Australian Taxation Office show Australia had 1.7 million loss making property investors in 2008-09, losing collectively $6.5 billion.
9th April : Wayne Swan has quickly entered the debate, ruling out any changes to negative gearing.
» NSW leader John Robertson calls for debate on changes to negative gearing – The Australian, 8th April 2012.
» Wayne Swan stands by negative gearing – The Australian, 9th April 2012.
» Negative gearing still on the chopping block agenda – Who crashed the economy?, 5th October 2011.
» Negative gearing rort added to endangered species list – Who crashed the economy?, 21st April 2011
Posted in Australian Economy, Australian Housing, Negative Gearing | 24 Comments »