No Comments

Effects of the Banking Royal Commission on Australia Property Prices

Evidence has emerged to suggest the ongoing Banking Royal Commission will impact availability of financing for house purchases. However, experts say that this is unlikely to have much effect on house prices in the long term. The real drivers of property prices are land availability, construction costs, population growth, and to a lesser extent finance access and cost

The Australian Banking Royal Commission was established last December, after years of public pressure, to investigate alleged misconduct by Australia’s financial services entities.

So far, proof of appalling behaviour by Australia’s major banks and financial planners from the past decade has surfaced, which include alleged bribery, forgery of documents, the repeated failure to verify customers’ living expenses before approving loans, and selling insurance to people who are unable to afford it.

In the aftermath of the scandals, several high profile finance executives have resigned, while shares of Australia’s major banks have all fallen at least 20% from highs reached before last May’s budget.

Commonwealth Bank, Westpac, and National Australia Bank shares are about 23% below their peak of late April 2017, while ANZ’s stock has fallen 20%.

Even as the Royal Commission goes on, tighter lending standards have already been enforced by the Australian regulator, with some self-imposed, as banks attempt to realign lending practices with responsible lending principles.

What the experts say

There has been concern that as tightening regulations reduce availability of financing, demand for property will follow suit, causing a drop in house prices. Several experts have chimed in on the matter.

JP Morgan’s Australian economics team suggests that the Royal Commission will cause slower credit growth, job losses in the finance sector and slower household consumption, which will lead to declines in house prices in the short term.

While JP Morgan believes the fallout from the Royal Commission creates short term downside risks for the Australian economy, in the long run it will leave Australia’s finance and household sectors, as well as the broader economy, on a stronger footing than is currently the case.

All else being equal, JP Morgan is of the view that this should be positive for the longer-term investment and productivity outlook.

Rachel Ong, Professor of Economics at Curtin University says that the stricter regulations are not likely to impact house prices.

“The tightening of banks’ lending standards and stricter credit controls should lead to a reduction in demand for properties.

“However, this prospect is unlikely to translate into any meaningful reductions in property prices. Property prices in Australia have remained persistently high since the early 2000s,” she says.

Brendan Coates, Fellow from Grattan Institute, says that any short term reduction in house prices is unlikely to have much of an impact.

“Tighter lending standards to reduce the amount of money prospective homebuyers could borrow would push down property prices, at least in the short-term. But the effect is likely to be modest, because banks have already tightened lending criteria in recent years,” he says.

Maria Yanotti, Lecturer of Economics and Finance, from University of Tasmania, is of the opinion that the Royal Commission is more likely to affect the supply of financial services, than demand for loans.

“As a consequence of the commission’s findings we would like to think that financial institutions will have to put in place better compliance processes and stop cost-saving or income-generating practices that disadvantage or put consumers at risk. These new processes and practices will translate into higher costs for the financial institutions, which will be passed on to consumers via higher interest rates and/or lower access to finance.

“This situation will result in lower demand from those looking to own a home, in favour of higher demand for rental housing. But the effect of higher interest rates may not be strong enough to decrease demand for property by real estate investors and businesses.

“The real drivers of property prices are land availability, construction costs, population growth, and to a lesser extent finance access and cost,” she observes.

It seems apparent that falls in property prices are unlikely to make much of an impact, or are merely confined to the short-term, giving a good outlook for investment in Australian property for investors keen to get a bargain whilst capital growth has slowed.

What are your thoughts about the impact of the Banking Royal Commission on property in Australia? Drop us a comment below. If you are interested in Australia and, particularly, Melbourne’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!

By Ian Choong

Sources:

  • https://www.businessinsider.com.au/australia-banking-royal-commission-economic-impact-jp-morgan-employment-house-prices-2018-5
  • http://www.afr.com/real-estate/will-the-banking-royal-commission-push-down-property-prices-we-ask-5-experts-20180514-h102gm
  • https://www.smh.com.au/business/banking-and-finance/housing-royal-commission-jitters-drag-big-banks-into-bear-market-20180613-p4zl88.html
  • https://www.theguardian.com/australia-news/2018/apr/20/banking-royal-commission-all-you-need-to-know-so-far
No Comments

England & the World Cup 2018

What has England, the World Cup and real estate got to do with each other?

The World Cup season is upon us! CSI Prop examines the unlikeliest connection between England, football and real estate.

Did you know that since its inception in 1930, 79 national teams have made at least one appearance in the FIFA World Cup Finals but, of this number, only 8 nations have ever won the Cup?

Drilling down a little further, now: England made history when it won the trophy for the first time in 1966. It may remain the only time, to date, that this will ever happen — pundits are claiming England has just about a smidgen of a chance (4%, to be exact) of winning the World Cup this year.

But where are we going with all this footie talk? Patience; we’re getting to it.

Watch England’s winning goal and a very pretty young Queen E presenting the cup!

History shows that 1966 is not just when England won the World Cup.

It was also a time when house prices in the UK were at a stupendously affordable average of £2,006.

Research shows that UK house prices are 106 times higher now than they were when England won the World Cup, catapulting from an average price of £2,006 in 1966 to £211,000 today.

Wages, meanwhile, had risen at around a third of the rate, moving from £798 to £26,500. Meaning, it’s 3 times harder to get on the property ladder than it was in 1966, when the Beatles’ Yellow Submarine rode the top of the charts, the miniskirt came into fashion, David Bowie released his first single, and Gordon Ramsay was born.

It gets a little grimmer. House prices aren’t deflating any time soon, not with demand far outstripping supply and driving prices to increasingly stratospheric levels.

In February, research by Heriot-Watt University showed that England is facing its biggest housing shortfall ever, with a backlog of 4 million homes. Meanwhile, rough sleeping or homelessness has risen by 169% since 2010.

This means, in order to address the escalating housing crisis in the UK, the government needs to build 340,000 new homes each year until 2031.

This is a significantly higher figure than the government’s annually targeted 300,000 homes that we talked about in some of our previous posts.

In 2017, Professor David Miles, a former member of the Bank of England’s monetary policy committee, said that the shortage of housing and restriction on the availability of land in the UK, will mean house prices keep soaring for decades to come. He referenced analysis that showed that house price inflation over the past 30 years is likely to continue for the next 50 years.

Britain is wont to remain a nation of renters, by the looks of it, particularly as the younger generation moves increasingly towards the idea of renting a home, rather than owning one.  

If you’d hedged your bets (and currency!) on UK property all these years, you’ve certainly scored big time on rental returns. We suggest you continue taking your chances on the UK property market, and forget about betting on England’s remote chances of winning the World Cup this year. Keen to talk property or even football? Call us at 03-2162 2260 or email info@csiprop.com. Or share your thoughts on who’ll win the World Cup this year in the comment box below!

By Vivienne Pal

Source:

1 Comment

Is Growth in Store for Australian House Prices?

What’s in store for the Australian housing market in terms of price growth?

This year will not be a bumper one for the Australian housing market; Sydney will drag Australia house prices down this year. But will it be all doom and gloom moving forward? What does the future hold?

Australia and New Zealand Banking Group (ANZ) economists say Australian house prices will start to go up this year, with higher growth expected in 2019.

Australian house prices are 0.8% higher than they were 12 months ago. ANZ forecasts a growth of 1.8 % this year, which will pick up to 3.6% in 2019.

Senior ANZ economists Daniel Gradwell and Joanne Masters said, “We think most of the slowdown has already occurred. We retain our view that prices will not materially decline. Over the near term, auction results in Sydney and Melbourne suggest that the majority of the price growth adjustment is behind us.”

Australia housing price forecast to 2019: Australia and New Zealand Banking Group (ANZ) economists say Australian house prices will start to go up this year, with higher growth expected in 2019. Source: ANZ
Australia housing price forecast to 2019: Australia and New Zealand Banking Group (ANZ) economists say Australian house prices will start to go up this year, with higher growth expected in 2019. Source: ANZ & Domain

The economists see the strong labour market and rising incomes as the main drivers of price growth, with the absence of an interest rate increase this year also supporting house prices.

However, Morgan Stanley analysts aren’t as confident, seeing risks building in 2018 after several months of house price weakness and a potential for increased regulatory pressure.

“Conditions for housing for the remainder of 2018 continue to look challenging with further regulatory tightening of credit, an increasing stock of properties to be settled, and continued uncertainty on government policy for housing as the election cycle looms,” equity strategists led by Daniel Blake wrote to clients this week.

“This leaves us cautious on the outlook not just for housing, but the broader economy in 2018, given the leveraged exposure of the economy to the property market.”

Australia housing price forecast by states to 2019: Melbourne and Hobart take the lead again in house price growth. Source: ANZ
Australia housing price forecast by states to 2019: Melbourne and Hobart take the lead again in house price growth moving into 2019. Source: ANZ & Domain

AMP chief economist and head of investment strategy Shane Oliver said that a looming house price crash was unlikely.

Debt serviceability remains relatively strong, with APRA’s rule tightening leading to a drop in interest-only lending, and mortgage stress appears to be low, for now.

House price growth by market segment : Data reveals that, unlike Sydney, Melbourne has seen continual price growth for most market segments throughout the year, albeit at a moderated rate. Source: ANZ & Domain
House price growth by market segment : Data reveals that, unlike Sydney, Melbourne has seen continual price growth for most market segments throughout the year, albeit at a moderated rate. Source: ANZ & Domain

“To see a property crash we probably need much higher interest rates or unemployment (neither of which are expected) or a continuation of recent high construction for several years (which is unlikely as approvals have cooled from their 2016 highs),” Dr Oliver wrote.

ANZ predicts that Melbourne and Hobart will continue to outperform the rest of the Australian capital cities, like Sydney and Perth. We discussed extensively the growth of Melbourne and the emergence of Hobart in our 2018 outlook on the Australian housing market.

First-home buyers are replacing investors

Tighter regulations governing the number of investor and interest-only lending has seen a significant pullback in buying activity from those types of buyers, ANZ research shows.

Last year, the Australian Prudential Regulation Authority (APRA) changed the rules for lending to investors and interest-only borrowers. There has been an increase in interest rates for these types of borrowers, and serviceability calculations and loan-to-value (LTV) ratio requirements have also been affected.

Financing for Investors vs Owner-Occupiers 2005-2018: While tightened regulations continue to moderate investor sentiment, it will not be at too substantial an extent, given that the Australian housing market is underpinned by strong population growth and housing demand. Source: ANZ & Domain
Financing for Investors vs Owner-Occupiers 2005-2018: While tightened regulations continue to moderate investor sentiment, it will not be at too substantial an extent, given that the Australian housing market is underpinned by strong population growth and housing demand. Source: ANZ & Domain

We are optimistic that while tightened regulations continue to moderate investor sentiment, it will not be at too substantial an extent, given that the Australian housing market is underpinned by strong population growth and housing demand.

However, despite APRA changes reducing the number of investors in the housing market, to a large extent, the gap is being filled by first-home buyers. Government grants and sizeable stamp duty tax concessions in NSW and Victoria have helped spur a revival among first-home buyers.

Number of first home buyer financing commitments 2006-2018: Government grants and sizeable stamp duty tax concessions in NSW and Victoria have helped spur a revival among first-home buyers in recent times. Source: ANZ & Domain
Number of first home buyer financing commitments 2006-2018: Government grants and sizeable stamp duty tax concessions in NSW and Victoria have helped spur a revival among first-home buyers in recent times. Source: ANZ & Domain

Interest rate hike not expected till 2019

The ANZ economists write that high household debt leaves households sensitive to interest rate increases, but this is unlikely to become an issue this year. They predict that the rate hike will come in mid-2019.

“We do not expect the RBA to hike rates until 2019, and then by only 50 (basis points) in the year, which is unlikely to hit affordability in a material way. Moreover, most households continue to hold a solid buffer.”

While Morgan Stanley remains cautious on the property market, the analysts concede consumer confidence has remained above trend, and building activity has also outstripped expectations.

“These factors are holding up better than past relationships with prices would suggest, which in turn sees the broader impact of the slowdown in housing prices being limited – so far,” the equity analysts wrote.

Article by Ian Choong

 


  • https://www.domain.com.au/money-markets/five-graphs-that-explain-why-the-worst-is-behind-the-australian-property-market-20180405-h0yd27/
  • https://www.domain.com.au/money-markets/whats-next-for-australian-property-prices-3-economic-heavyweights-make-their-case-20180409-h0yijb/
  • www.csiprop.com/australia-property-outlook-2018/

CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

No Comments

Australia House Prices Stabilizing?

House prices across Australia have stabilized during the past week after months of falling.
Prices in Melbourne and Sydney have remained unchanged this week. For the last month prices in Melbourne dropped by 0.1% and Sydney by 0.6%. Image source: Business Insider dot com dot au
Prices in Melbourne and Sydney have remained unchanged this week. For the last month prices in Melbourne dropped by 0.1% and Sydney by 0.6%. Image source: Business Insider dot com dot au

House prices across Australia seem to have stabilized after months of falling, with prices in Melbourne and Sydney remaining relatively unchanged this week. For the last month, prices in Melbourne dropped by 0.1% and Sydney, by 0.6%.

Nationally, housing values have fallen 0.8% since September 2016. On a yearly basis, price growth in Melbourne remains strong at an increase of 6.9%, but muted from the previous year. Sydney, however, registered a decrease of 0.3%.

CoreLogic’s head of research Tim Lawless said this was fuelled by tighter credit policies particularly focused on investment and interest-only lending, which reduced demand from that part of the market.

“We think there is already evidence that the slowdown in house prices is stabilising,” said David Plank, Head of Australian Economics at ANZ Bank.

“Base effects mean the annual house price figures will continue to slow for a while yet even if monthly prices are stabilising, but we would caution against focusing on the annual change over the seasonally adjusted monthly move as it will mean that turning points are missed.”

Could this week’s price stabilization indicate a turning point for the housing market?

Australia House Prices: housing undersupply vs population growth

According to data released by the Australian Bureau of Statistics (ABS) last June, Australia’s residential population soared by 389,100, or 1.6%, to more than 24 million persons in the year to March, the fastest increase since 2014. However there was a 3.3% decline in residential construction, with the last quarter of 2017 recording a 0.7% decline.

New-build apartments like the upcoming Palladium Tower in Southbank, are being constructed to address the severe lack of housing in Melbourne.

Palladium Tower is strategically located in the Melbourne CBD area, right next to Fishermans Bend, Australia’s largest urban renewal project covering 485 hectares in the heart of Melbourne. By 2050, the area is expected to provide housing for up to 80,000 people, and employment for 40,000.

AMP Capital’s Shane Oliver told The New Daily that while Australia was near equality in construction versus population growth, for the most part, yet the last decade of construction had failed to keep up with Australia’s record population growth.

Commsec Senior Economist Ryan Felsman said, “If you look at Melbourne there’s 120,000 people moving to it per annum, but only 75,000 houses being built,”

Last year, the Urban Development Institute of Australia warned that Victoria could have a shortfall of 50,000 houses by 2020. ABS figures released in June show the state gained 144,400 to 6.3 million persons, a 2.3% increase compared to the previous year at 2.1%.

All the signs point to increased demand in the face of short supply over the next few years, especially in places like Melbourne where yearly price and rental rises have been consistent. With construction of new housing unable to match demand for the foreseeable future, opportunities continue to abound for the investor. 

By Ian Choong

Source:

https://www.businessinsider.com.au/australia-house-prices-steady-as-clearance-rates-lift-2018-2

https://www.businessinsider.com.au/australia-house-price-outlook-supply-and-demand-factors-2018-2

https://thenewdaily.com.au/money/property/2018/02/24/australia-not-building-enough-future/

http://www.abs.gov.au/ausstats/abs@.nsf/0/13ABDBADFD4D140ACA2568A9001393D7?Opendocument

csiprop.com/melbourne-property-is-fastest-selling-in-australia/

csiprop.com/australia-faces-major-housing-undersupply/

CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and commercial property including student accommodation and carehomes, in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc) and Australia (Melbourne, Perth, Brisbane). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260