Australia’s fledgling social and sustainability bonds market is taking flight with $805 million in issuances by the National Finance and Investment Corporation in the past year oversubscribed by at least two times.
The continued growth in the investor base, both locally and from overseas, reflects the emergence of social and affordable housing as a recognised investment asset class.
More than half of the new institutional investors were from offshore.
Funds raised from the issuance of the government-guaranteed bonds are used to finance or refinance housing projects that have positive social and green outcomes.
According to the latest National Housing Finance and Investment Corporation (NHFIC) Social Bond Report, its 2020-21 issuance supported more than 4900 dwellings.
About two-thirds (65 per cent) of the community housing provider (CHP) loans funded by the three bonds underpinned new housing supply.
The bond issuance—including NHFIC’s first sustainability and longest tenor bond (15 years), and first floating rate note—also provided nine CHPs with an estimated $161 million in fee and interest savings, through longer tenor and lower-interest loans.
NHFIC chair Adrian Harrington said its social bonds now accounted for more than a quarter of all Australian dollars issued.
“Our bond program has attracted close to $2 billion from more than 60 institutional investors,” he said. “This makes us a leading issuer of social bonds in Australia.”
He said the issuance of NHFIC’s first sustainability bond had helped attract new investors to support sustainable, social and affordable housing across the country.
“The strong support we have received from the institutional investors bodes well for social and affordable housing becoming a more established investment asset class in Australia,” Harrington said.
The CHPs supported by the bonds issued by NHFIC during the 2020-21 financial year included Building Communities (Vic), Common Equity Housing Limited, Foundation, Housing Choices SA, Housing Choices Tasmania, Mission Australia, Pacific Link, SGCH Group and Unison.
Article Source: www.theurbandeveloper.com
APRA rules to target higher risk loans
Banks will be required to set aside more capital for higher risk interest-only and investor mortgages, under long-planned changes to regulation that are aimed at making the sector more resilient to future shocks.
The Australian Prudential Regulation Authority (APRA) on Monday finalised its new framework for bank capital, which acts as a critical buffer to protect the financial system in economic crises.
The new regime, which APRA has been consulting on for four years, will start in 2023, and it will cement reforms that originated in the 2014 financial system inquiry led by former Commonwealth Bank chief David Murray.
APRA said its new framework would not force banks to raise more capital, but confirmed that it would impose higher capital requirements on mortgage lending deemed to be higher risk.
The changes are unlikely to come as a shock to banks, as they had been repeatedly flagged to the market. In response, banks have in recent years charged higher interest rates to property investors, interest-only borrowers and customers with smaller deposits. At the same time, banks are offering the lowest rates to owner-occupiers with larger deposits who are paying principal and interest.
Bank capital refers to funds held by the bank that can act as a shock absorber against risks, such as borrowers defaulting.
APRA said Australian banks’ top-tier capital had roughly doubled since the global financial crisis to more than $260 billion, and its new framework was aimed at reinforcing this strength.
In mortgages, the largest asset class for Australian banks, the regulator said its new framework would aim to better distinguish between higher and lower-risk lending.
To do this, it is changing the banks’ “risk weights” – financial models used to determine the riskiness of a loan, which influences how much capital is set against different types of lending.
Under the changes, loans to owner-occupiers who are repaying both interest and principal will attract lower risk weights, while loans to investors and interest-only borrowers will attract higher risk weights.
Banks have already incorporated these changes into their pricing in recent years, but APRA’s new framework is likely to embed these practices permanently.
APRA chairman Wayne Byres said the changes were aimed at ensuring the nation’s banking system remained strong compared with banks overseas. “Capital is the cornerstone of the banking system’s safety and stability. It protects depositors during periods of stress, ensures banks can access funding, facilitates payments and helps banks to keep lending to their customers during good times and bad,” Mr Byres said.
“Although Australia’s banking sector is already strongly capitalised by international standards, the new capital framework will help ensure it stays that way,” he said.
Smaller banks have long complained that Australia’s capital framework gives the big four banks and Macquarie Group an unfair advantage in the home loan market. This is because “advanced” banks with more sophisticated risk systems receive more favourable capital treatment.
APRA said its new framework tried to better support competition, but it had not closed the capital gap entirely between the “advanced” banks and others because it supported giving lenders an incentive to invest in advanced modelling.
Article Source: www.brisbanetimes.com.au
CBA Predicts House Prices Will Drop 10pc
Another of banking’s big four has added its voice to the chorus predicting a drop in housing prices is on the horizon.
The Commonwealth Bank of Australia says Australia’s housing prices will drop by 10 per cent as prices start to moderate next year before dropping significantly in 2023.
It is the latest banking institution to join the growing consensus that house prices will correct in 2023: Westpac predicted softer changes in dwelling prices up 8 per cent in 2022 and down 5 per cent in 2023, similar to the ANZ’s assertion of a 6 per cent rise before dropping 4 per cent.
Meanwhile, NAB had witnessed a fall in property sentiment from experts and predicted 4.9 per cent growth next year.
Sydney and Hobart would be the hardest hit capital cities with prices expected to drop 12 per cent in 2023, according to the CBA, however, if the 2022 price increases were included, the impact was less severe.
The prediction for high-density developers was more promising with units to increase by 9 per cent next year before dropping by 7 per cent in 2023, creating a 2 per cent increase overall.
CBA dwelling price forecasts
^Source: CBA, Corelogic
CBA head of Australian economics Gareth Aird said the predictions took into account higher fixed mortgage rates, affordability constraints and natural fatigue after a period of extraordinary price gains.
“Our expectation for the RBA to commence normalising the cash rate in November 2022 means that we expect national dwelling prices to peak in late 2022 around 7 per cent higher than end 2021 levels,” Aird said.
“We expect an orderly correction in home prices of around 10 per cent in 2023 as the RBA takes the cash rate to 1.25 per cent by the third quarter of 2023.”
ANZ senior economist Felicity Emmett unpacked the impact of interest rate decisions and said the Reserve Bank was more concerned about the amount of housing credit in comparison to wage growth, and mortgage serviceability rather than house prices.
However, the increase in dwelling prices was not being passed on to developers, with greenfield sites increasing in price as well as construction costs which went up 7.1 per cent
in the past year.
Article Source: www.theurbandeveloper.com
What Should Every Entrepreneur Know About Caveat Loans?
Who among us hasn’t entertained the idea of running your own business?
Thousands of Australians launched one throughout their middle years. If you wish to join them, though, raising funds might be a roadblock. However, here’s some good news: when you’re in an excellent financial position and have no debt other than your mortgage, you may qualify for a caveat loan.
“Caveat loans are primarily provided to businesses in need of short-term financing, and they are frequently covered by the business’s or shareholders’ personal property,” says Max Funding’s lending specialist Shane Perry.
If you think caveat loans are a viable financing option for your small business, here’s everything you need to know about caveat loans.
How Do Caveat Loans Work?
The first thing to learn about caveat loans is what they are and how it works for entrepreneurs. Caveat loans are short term loans, also known as “bridge loans.” When you take out a caveat loan, you may use any property (commercial, residential, etc.) as collateral and get funds. This kind of financing does not need a lot of paperwork and maybe approved within a day.
Typical Caveat Loan Conditions
Short-term funding is the goal of most caveat loans, which typically have terms of one to twelve months. As a result, small businesses may find themselves in a precarious position despite the decreased interest rates if they fail to pay back their loans on time, placing them in danger of default. In addition, the lender can forfeit the property if the loan is not repaid on time.
Interest Rates On Caveat Loans
If you’re looking for long-term financing, a caveat loan may not be the best option. Private lenders often disclose caveat interest rates on loans on a month-to-month basis. That indicates a monthly interest rate of 0.99 % to 1.5% for many Australian lending institutions.
At first sight, it seems to be an excellent deal — until you factor in the annual rate. Assuming a 12 to 18% yearly interest rate, a borrower would pay least that much every year. By accepting these rates, cash-strapped borrowers risk default and losing the collateral where the lender has placed a caveat.
Second Mortgage, Are They The Same As Caveat Loans?
One of the most common misconceptions regarding caveat loans is that they are seen as a second mortgage—which is wrong. Many people mistakenly believe that a caveat loan is a type of mortgage since the property is being used as collateral; however, this is not the case.
Using the equity in the property as collateral, the lender grants you a loan. However, the lender restricts the property by placing a lien on it. The lender’s caveat prevents you from selling the property. In addition, you can’t obtain additional financing against the same property. Mortgages and caveat loans vary significantly in this respect.
Do Some Australian Business Owners Use Personal Properties As Collateral For Caveat Loans?
Small business owners and sole proprietors often use their personal property as collateral, and lenders are more than willing to accept that. However, if the property is occupied as a residence, the risk is just too high.
It’s usually a good idea to understand caveat loans before applying. Don’t rush into the deal since you won’t secure additional financing for your property. However, it’s good to note that caveat loans allow you to finance 100% of your loan-to-value ratio even if you have a poor credit history. Caveat loans are a great option if you’re looking to grow your business, launch a new venture, or improve your cash flow.
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