The Reserve Bank of Australia has identified risky excessive borrowing as an ongoing problem for lending institutions and the broader economy in its Financial Stability Review.
The RBA’s October financial stability review was delivered in the wake of the Australian Prudential Regulation Authority announcement of an increased loan serviceability buffer to counteract growing concern over high debt loans and financial risk.
But overall Australia’s economy was resilient.
According to the central bank’s report, “low interest rates have contributed to high prices for financial assets and housing” which has led to higher borrowing.
“With interest rates expected to remain low, investors have been taking on more risk to seek higher returns,” the report stated.
“In Australia, and some other countries, there have been large increases in housing prices and an acceleration in borrowing.
“Vulnerabilities can increase if housing market strength turns to exuberance with borrowers taking on greater risk given expectations of further price rises and banks potentially easing lending standards.”
The RBA reported that a significantly lower number of borrowers had applied for loan repayment deferrals this year, in contrast to last year, and that policy measures had supported households’ and businesses’ balance sheets.
But it warned that financial stress was still being experienced in highly impacted industries including tourism, and those living in areas under the most “stringent” lockdowns.
Share of high debt-to-income ratio loans to total
CBA Economics head of Australian economics Gareth Aird said the report painted a picture of a central bank that was paying close attention to the housing market and rising debt levels.
“The RBA has expressed concerns around the overall level of household indebtedness for some time … without doubt those concerns have been notched up more recently given the acceleration in borrowing,” Aird said.
“But if credit growth remains stronger than income over coming months, pressure is likely to intensify for APRA to make some more policy changes … it is crystal clear that the RBA will seek to have any concerns around an overheated housing market addressed through more macroprudential policies from APRA.
“Rapidly rising home prices or an acceleration in household debt because of record low rates will not directly feed into the RBA’s decision making around when they commence normalising rates.”
Capital Economics economist Marcel Thieliant said the RBA’s stance had been “dovish” compared to New Zealand’s central bank.
“Both countries are witnessing very strong house price growth and Australia’s housing regulator this week lifted the serviceability buffer banks need to use to assess a borrower’s capacity to repay a mortgage from 2.5 per cent to 3 per cent,” he said.
“APRA described the change as ‘fairly modest’ and we still expect it to impose debt-to-income restrictions next year.”
Thieliant said the RBA was heavily focused on underlying measures of inflation and wage growth rather than headline inflation, with forecasts remaining firm for a flat RBA interest rate through to 2023.
BIS Oxford Economics economist Maree Kilroy said she believed APRA would undertake further macro-prudential measures if necessary.
“The regulator plans to publish an information paper on its framework for the use of macroprudential tools at some point over the coming months,” Kilroy said.
“This seems likely to represent a marker for further intervention, especially if the pace of price growth isn’t tamed in [the fourth quarter] and lending to marginal borrowers does not ease.”
Kilroy said APRA could lift mortgage serviceability buffers further or introduce loan to value ratios, or debt to income constraints.
“Interest rates are another risk … our baseline assumption is that the RBA will begin to lift rates from the third quarter of 2023, but it could start earlier if inflation overshoots expectation.”
Article Source: www.theurbandeveloper.com
Lending restrictions could hit property investors
Property investors are likely to find it harder to obtain the big mortgages often required to buy free-standing homes after regulators signalled they would likely act to tighten lending rules.
The Council of Financial Regulators says that with credit growth materially outpacing growth in household income, there is increasing medium-term risks facing the economy, even though lending standards remain sound.
The Australian Prudential Regulation Authority (APRA), which is a member of the council, is weighing up what measures it could take to curb riskier borrowing.
One of the tools APRA could use is to make lenders subject to a cap on mortgage lending to borrowers with a ratio of more than six times debt to annual gross income – the point at which it considers the lending to be risky.
CoreLogic data released on Friday show Sydney house prices are now up 25.8 per cent since the year began, with Melbourne prices up 16.2 per cent.
In September, Sydney’s median house price soared by $18,000 to $1,311,641 – a stunning gain of about $600 a day. In Melbourne, the median jumped by $7750 to $962,250 – up about $260 a day.
Nationally, the monthly growth rate in prices slowed to 1.5 per cent, compared to its peak rate of 2.8 per cent in March.
The CoreLogic figures show house values are generally rising faster than unit values, a trend that has been evident throughout most of the COVID-19 period, especially in capital cities.
“There has been a shift by investors from units to free-standing houses,” says Doron Peleg, founder of RiskWise Property Research.
They are attracted to houses because of the potential for capital gains, he says. However, houses usually require larger mortgages than units and, if APRA does impose lending limits, investor buying activity would likely drop, Peleg says.
He says that single-income owner-occupiers would be another group that would likely find it harder to buy property if the regulator was to impose a debt-to-income cap on lenders.
Andrew Wilson, consultant economist at Bluestone Home Loans, questions the need for regulatory intervention. He says mortgage arrears and defaults remain low and price growth is slowing as affordability barriers increase.
“The significant pent-up demand built up over the past few years has been largely released and satisfied – and lacks the capacity to refuel rapidly from either lower interest rates or higher migration,” he says.
However, Shane Oliver, chief economist at AMP Capital, says a tightening of lending controls to slow the record levels of housing finance is warranted. He says more than 20 per cent of new loans are going to borrowers with debt-to-income ratios above six times, up from 14 per cent two years ago.
He says housing credit is growing faster than when APRA last started restricting lending in 2014, when it targeted lending to investors.
Dr Oliver says regulatory moves to slow lending growth looks “likely from later this year” and, if that occurs, capital city price growth could slow to about 7 per cent during 2022.
Still, he says regulatory intervention is only a “cyclical measure” and that long-term measures are needed to improve housing affordability, such boosting housing supply and decentralising away from major cities.
The Reserve Bank of Australia has consistently said it is unlikely to increase official interest rates until 2024, at the earliest.
Article Source: www.brisbanetimes.com.au
Australian Unity Tips $30m into SDA Fund
Wealth and investment platform Australian Unity is ramping up its specialist disability housing portfolio, tipping a $30.5-million raise into its newly established specialist disability accommodation fund.
Since opening the fund to investors 18 months ago, Australian Unity has grown its “participant-centric” SDA assets across the eastern seaboard to more than $50 million in assets.
Australian Unity seeded the fund with 33 specialist disability accommodation apartments and five carers’ apartments in Melbourne’s eastern and northern suburbs after a
Australian Ethical, an initial investor in fund, will again act as a cornerstone participant in the raise.
The group is banking on recent rising demand for the niche asset class, which has grown from nothing into a $2.5-billion asset class in the past five years.
Housing in the sector is specially developed for people living with a disability, with rental streams backed by the National Disability Insurance Scheme.
Industry forecasts are expecting the creation of a $10-billion asset class with an estimated $700 million to be spent annually on SDA payments as part of the NDIS, unlocking an enormous opportunity for the private sector.
Australian Unity social infrastructure general manager Ryan Banting said the fund was a critical component of the group’s broader commitment to social infrastructure assets, including hospitals, medical centres, aged care and student accommodation.
The group’s existing social infrastructure portfolio includes Brisbane’s $1.1-billion Herston Quarter redevelopment, along with its investments in hospitals, medical centres and seniors living facilities across the country.
“Across the property market, few growth opportunities have matched that of Australia’s disability housing sector, which during the past five years has emerged from the ground-up to reach $2.5 billion,” Banting said.
“The attraction is reflective of the sector’s risk appropriate yields and the opportunity to make a measurable difference to the lives of Australians living with disability.”
As well as Australian Unity, Macquarie, Lighthouse Infrastructure and ASX-listed Arena REIT are all early movers in the sector.
Already Summer Housing has raised more than $300 million from a variety of sources, with 370 dwellings financed.
Article Source: www.theurbandeveloper.com
Investors continue to tip metropolitan markets as offering the best investment prospects: PIPA survey
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.
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
- Real Estate6 years ago
Millions going into Brisbane homes with Asia boom 2.0 well underway
- Property Management6 years ago
7 Common GST Mistakes On Property
- Residential5 years ago
Ipswich Proves Frontier In Affordable Housing
- Market Place8 years ago
Affordable housing in Queensland coastal suburbs
- Residential6 years ago
Best Brisbane suburbs for rental returns
- Market Place4 years ago
Affordable acreage suburbs within 20km of the Brisbane CBD
- Infrastructure4 years ago
Decision on horizon for key marina section of huge North Harbour development at Burpengary
- Market Place3 years ago
Moreton Bay makes top 10 list of places to invest in property