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Finance

Affordability Slows First Home Buyers

property

The home loan market came off the boil in June with new loan commitments falling 1.6 per cent overall from record highs to $32.05 billion.

This was the first significant fall since May, 2020.

It was led by a 17.5 per cent decline in financing for the construction of new dwellings, which is now down almost 40 per cent since February.

Owner-occupier loans fell by 2.5 per cent from record highs, led by a continued unwind in the HomeBuilder-driven pull-forward in construction-related finance, and a further softening in first home buyer activity.

ABS head of finance and wealth Katherine Keenan said that while it was the largest fall since May 2020, owner-occupier commitments remained 76 per cent higher compared to a year ago and 64 per cent higher than pre-Covid levels in February 2020.

“The largest contribution to the fall in owner-occupier loan commitments was a fall of 17 per cent in the value of loan commitments for the construction of new dwellings,” Keenan said.

“In addition, there was no growth in lending for the purchase of existing dwellings.”

At a state level, Western Australia has the weakest result, down 5.8 per cent over the month, while Victoria was down 5.2 per cent and NSW down 2.4 per cent, the latter showing no apparent disruptions due to the recent lockdown.

The fall in construction lending follows a period of rapid growth between July 2020 to February 2021 in which the value of loan commitments rose by 150 per cent.

As well, the slowdown in overall lending follows a third consecutive monthly fall in dwellings approvals, which peaked at about $23 billion in March after an almost year-long climb from a low of $12.7 billion in June 2020.

Westpac senior economist Matthew Hassan said building approvals, up 56 per cent across the year in value terms, were now very likely to fall below their pre-HomeBuilder level.

“Construction finance approvals dropped 9.6 per cent in value terms and over 18 per cent in number terms,” Hassan said.

“There is likely more weakness to come.”

Despite this, demand from investors remained strong, with loans lifting 0.7 per cent in June to be double a year ago and at the highest level since early-2015.

Loans for renovations also lifted, up 7.4 per cent to a record $486.8 million.

AMP Capital chief economist Shane Oliver said first home buyer finance had continued to decline from its peak in January and had fallen back from 25 per cent of total finance in December to now be 19.7 per cent.

“While it led the charge higher, helped by various incentives and investors retreating on the back of tighter lending standards and weak unit rental markets, first home buyer demand appears to have peaked as the HomeBuilder incentive has come to an end,” Oliver said.

“Demand has been brought forward and worsening affordability is starting to bite.”

By value, first home buyer loan commitments accounted for 31.2 per cent of all owner-occupier commitments in original terms, excluding refinancing, in June.

First home buyers also took out larger mortgages during the pandemic, reflecting higher housing prices.

According to ME Bank, the average loan size for single mortgage applications has risen by 1 per cent to $405,755.

First home buyers now need an additional four months on average to save a deposit on an entry-level house, according to Domain.

 

Article Source: www.theurbandeveloper.com

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Brisbane

Investors continue to tip metropolitan markets as offering the best investment prospects: PIPA survey

Investors

Nearly 62 per cent of investors believe now is a good time to invest in residential property

Investors continue to tip metropolitan markets as offering the best investment prospects, according to the 2021 PIPA Annual Investor Sentiment Survey.

The national annual survey, which gathered insights online from nearly 800 property investors during August, found that more than 76 per cent of investors believe property prices in their state or territory will increase over the next year.

It was up strongly from 41 per cent last year, PIPA chairman Peter Koulizos said.

“Few people believed the positive investor sentiment in last year’s survey, even though history had showed the resilience of real estate time and time again.

“When we think back to last year, which was a time of much fear and uncertainty, it’s clear that property investors and the market in general has weathered that turbulent period better than anyone dared to hope,” Mr Koulizos said.

The key findings found the pandemic continues to make it less likely that investors will sell a property over the next 12 months, according to 59 per cent of respondents (down from 71 per cent last year). However, about 18 per cent (up from seven per cent in 2020) said it had made them more likely to sell.

Queensland emerged as the winner by a serious margin with a staggering 58 per cent of investors believing the Sunshine State offers the best property investment prospects over the next year – up from 36 per cent last year.

 Investors

Trellis 20 Edmondstone Street, South Brisbane QLD 4101 

New South Wales was second at 16 per cent (down from 21 per cent in 2020) and Victoria was third at 10 per cent, down significantly from 27 per cent last year.

“While investors continue to tip metropolitan markets as offering the best investment prospects at nearly 50 per cent (but down from 61 per cent in 2020), regional markets are in favour with 25 per cent of investors (up from 22 per cent) as well as coastal locations with 21 per cent of survey respondents (up strongly from 12 per cent last year),” Mr Koulizos said.

The two leading concerns of the investors surveyed were gaining access to lending and Australian economic conditions – “the same situation as last year.”

 

Article Source: www.urban.com.au

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Finance

Property Refinancing Hits Record Highs

Refinancing

Mortgage refinancing hit a record high in August, surpassing the record set in June 2020 when the Reserve Bank of Australia’s double rate cut impacted activity.

The Pexa index showed refinancing activity has steadily increased since 2019 with approximately 300,000 refinances completed in the past financial year, up around 10 per cent on the previous year.

Pexa Insight head of research Mike Gill said the index stood at 187 points for the week ending August 29, 2021, up 46.9 per cent on last year.

“Whether it is the forced downtime to reassess finances during Covid-19 related lockdowns, or speculation surrounding a potential interest rate rise as early as late 2022, refinance activity has reached new heights nationally,” Gill said.

“We anticipate a dip in property sale transactions as a result of the extended Covid-19-led lockdowns in New South Wales and Victoria, however, refinance activity is expected to remain elevated in the near future based on the current trend line.”

The reserve bank decided to hold the cash rate at 0.10 per cent this week, as the delta outbreak had interrupted the economic recovery.

Governor Philip Lowe said they would not increase the cash rate again, until actual inflation is sustainably within the 2 to 3 per cent target range, which was estimated to be in 2024.

“Housing prices are continuing to rise, although turnover in some markets has declined following the virus outbreak,” Lowe said.

“Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors.

“Given the environment of rising housing prices and low interest rates, the bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

 

Article Source: www.theurbandeveloper.com

 

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Finance

Developers Big Winners in Lending Battle

Developers

First, the bad news. A wave of increasing construction costs is hitting Australia’s property development sector.

Now, the good news.

According to Barwon Investment Partners head of property finance Jonathon Pullin: “It has probably never been a better time to be a developer or property owner wanting to take on debt”.

Pullin, who was a speaker at The Urban Developer’s recent Construction and Finance webinar, said Australia’s lending landscape had become increasingly competitive during the past 12 to 18 months.

Record low cash rates are prevailing and there are large amounts of capital available out in the market both on the debt side and also coming through on the equity side.

“The major bank lenders in Australia that have had a rough time of it over the last five or six years, they’re coming out the back of the Royal Commission, they’re coming into a bit more certainty through the Covid journey,” he said.

“And what we’re seeing across the country and in all sectors, they’re starting to become a little more front-footed in terms of wanting to get back into the market and claw back some of that market share that they lost to the larger non-bank lenders.

“Also, on the equity side of things, we’re not only seeing valuations hold up but improve—particularly in the residential side of the market—and a strong level of confidence from buyers.

“Put all that together … as a property owner or a developer it’s probably never been a better time for you in terms of financing your project and moving it forward.

“There are a whole lot more options out there in the market than what there and all of those options are broadly cheaper than where they were a few years ago.”

Pullin said the major banks had started to loosen some of their traditional covenants to win back business.

“Going back three years, across the market it was a 100 per cent pre-sales requirement for any residential project but you’ll see that’s now more a conversation around 80 per cent coverage and even in some cases lower than that,” he said.

“Funding limits also are increasing. At its worst, only a few years ago, the major banks were typically stopping at 65 per cent, maybe 70 per cent, of total development cost… we’re now seeing it coming up to 75 per cent of total development cost, sometimes 80 per cent.”

Pullin said institutional-grade mezzanine debt lenders were becoming an increasingly accepted part of the capital structure with the major banks working in conjunction with them to win business.

He said non-bank lenders, particularly institutional non-bank lenders, were “very hungry to do business” and broadening their sector and location coverage.

“Non-bank lenders are going up and over where the traditional bank will go to because they know their cost of capital is higher … but they will bring with it a lesser requirement around pre-sales.

“Typically, we’re seeing them look for 30 to 50 per cent pre-sales just to validate that project is accepted into the market.

“The benefit of these slightly higher cost solutions is projects can get going earlier and it allows developers to potentially lessen further increases in costs that are sitting on the horizon, like that wave of increasing construction costs.

“We are seeing a lot of developers really wanting to get their skates on at the moment and get projects under construction. So, if they don’t have pre-sales yet they’ll make as decision around whether they need to go with a non-bank solution with a lower pre-sales cover.”

Developers

▲ The major banks are loosening traditional covenants to claw back business lost to non-bank lenders.

Pullin said he expects the lending landscape to become even more competitive over the next 12 to 24 months with the possible emergence of alternate funding structures and some opportunistic lending coming into the market around sectors heavily Covid-affected.

“What does that mean for developers and property owners?

“An increased focus on hard costs from financiers in terms of looking at feasibilities and scenarios, further reductions in lending costs and loosening of covenants around the edges in a requirement to deploy capital.

“So really what you get at the end of day is more options available to developers that hopefully leads to better projects and better outcomes for them.”

Pullin said institutional-grade mezzanine debt lenders were becoming an increasingly accepted part of the capital structure with the major banks working in conjunction with them to win business.

He said non-bank lenders, particularly institutional non-bank lenders, were “very hungry to do business” and broadening their sector and location coverage.

“Non-bank lenders are going up and over where the traditional bank will go to because they know their cost of capital is higher … but they will bring with it a lesser requirement around pre-sales.

“Typically, we’re seeing them look for 30 to 50 per cent pre-sales just to validate that project is accepted into the market.

“The benefit of these slightly higher cost solutions is projects can get going earlier and it allows developers to potentially lessen further increases in costs that are sitting on the horizon, like that wave of increasing construction costs.

“We are seeing a lot of developers really wanting to get their skates on at the moment and get projects under construction. So, if they don’t have pre-sales yet they’ll make as decision around whether they need to go with a non-bank solution with a lower pre-sales cover.”

Pullin said he expects the lending landscape to become even more competitive over the next 12 to 24 months with the possible emergence of alternate funding structures and some opportunistic lending coming into the market around sectors heavily Covid-affected.

“What does that mean for developers and property owners?

“An increased focus on hard costs from financiers in terms of looking at feasibilities and scenarios, further reductions in lending costs and loosening of covenants around the edges in a requirement to deploy capital.

“So really what you get at the end of day is more options available to developers that hopefully leads to better projects and better outcomes for them.”

 

Article Source: www.theurbandeveloper.com

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