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The reasons behind Brisbane’s lagging property market: Macquarie Wealth

If you are planning to invest in properties, then you must know where you should invest. Brisbane, along with Queensland’s regional property markets, continue to lag other states this property cycle, according to Macquarie Wealth Management.

“Brisbane is still very much the laggard for this cycle given the sluggish domestic economy, with periodic price falls still common particularly for the Brisbane unit market,” Macquarie’s latest report noted.

It was in part because Queensland continued to show population growth moderation as the recent mining boom subsided.

The lagging occurs even as prices emerge back into recovery and should exhibit strong price growth into 2015, it noted.

“There are clear macro reasons behind this slow recovery, due to weaker domestic growth and the slow pace of interstate migration out of both Sydney and Melbourne,” the report said.

“Affordability levels in Brisbane are relatively good, given the recent price correction, which will offer a relatively larger buffer when mortgage rates eventually impact more significantly on affordability and pricing.”

Macquarie’s concerns relate to what it sees as “sluggish interstate migration and rising supply”.

Noting the surge in construction activity in 2014 in Brisbane, it did concede that Brisbane had not seen meaningful supply additions for some years.

“As the mining investment cycle unwinds, both foreign and interstate migration into Queensland is slowing significantly – a trend that will tangibly reduce housing demand in these regions,” it added.

Macquarie described the Australian residential housing market cycle as unfolding “largely as we expected”.

“Low rates and good affordability had bolstered a moderate price upswing in 2013, initially out of Sydney (after 10 years of subdued gains) before it broadened out to Perth and Melbourne and finally to Brisbane, the clear laggard in this recovery cycle,” the report noted.

“By late-2014 and into 2015, the stimulatory impacts from low rates have been largely realised.

“While further price gains ahead are still expected, the pace of growth is likely to be slower over the remainder of this upswing cycle.

“Medium term, the fundamental drivers of the Australian housing market are less favourable, but still firm overall.

“Housing demand is well supported, given solid migration, although that pattern of growth is still shifting clearly from resource-intensive states of Western Australia and Queensland back to the larger, more diversified states of New South Wales and Victoria.

“Developers are lifting supply in response, driving a surge in approvals and starts initially for units and apartments, but that supply is now broadening into detached housing as well.”

Meanwhile Brisbane’s off the plan apartment market has smashed its previous quarterly sales record with 1,621 unconditional transactions in the three months to December 2014.

The results as reported in Place Advisory’s quarterly unit report equated to more than 135 off the plan sales a week in the inner-Brisbane market.

Place Advisory noted that level of quarterly sales outstripped the records set during the previous cycle, where 1463 unconditional sales were recorded in the June 2002 quarter.

Place Advisory noted that AMP Capital and Billbergia’s Skytower was Brisbane’s top performing project for the quarter with a registered 415 apartment transactions in total.

Place Projects director Bruce Goddard said the result showed Brisbane was experiencing an unequivocal boom in apartment buying.

“With approximately $2.4 billion worth of new and off the plan residential sales recorded during the year 2014, it shows the Brisbane residential market remains in massive demand consistently city-wide,” Goddard said.

Apartments sold during the quarter showed a weighted sale price of $551,558 up from $545,478 in the threes months to September 2014.

Place Advisory director Lachlan Walker said he didn’t believe these sales rates were sustainable longer term.



How will the end of mortgage deferrals affect the housing boom?

mortgage deferrals

Australia’s red-hot property market has enjoyed extraordinary support from the federal government’s economic stimuli, wage subsidies and leniency in lending policy from the banks.

A key question now is how the market will adjust as this COVID-19 induced emergency support is wound back.

At the height of the worst peace-time recession in a century last year, banks pulled out all stops to avoid a meltdown in the asset that dominates their loan books: residential property.

Home loan and small business customers were given an option of putting their loan repayments on hold, and hundreds of thousands took up the offer. At the peak, banks allowed some $250 billion in small business loans and home loans to be put on hold.

These deferrals officially ended at the end of March and banks say the vast majority of affected customers have returned to making mortgage repayments. However, a small minority are still struggling – some may need to eventually sell their properties.

Commonwealth Bank provides a case in point. It says the overwhelming majority of people who deferred have returned to making repayments or restructured their loans. About 1.9 per cent are working with teams that help sell properties.

The bank has a moratorium on forced sales by owner-occupiers until September.

CBA retail banking group executive Angus Sullivan expects the end of deferrals would have a “very, very marginal” impact on the supply of homes for sale, as it would probably be overpowered by the stimulatory impact of ultra-low interest rates.

“I think the driver of the housing market, first and foremost, is probably low rates,” Sullivan says.

CBA’s rivals have experienced similar trends. National Australia Bank had 1037 deferred home loans at the end of February after allowing about 110,000 people to pause repayments last year.

“Given the significant number of customers who have returned to making repayments and additional support available, we don’t expect the end of deferrals to have a material impact on the housing market,” says NAB’s group executive for personal banking Rachel Slade.

Westpac has about 2000 loans in deferral – a tiny proportion of its mortgage book, while official figures last week showed ANZ Bank had 0.9 per cent of its housing loans in deferral at the end of February.

However, the end of mortgage deferrals could still weigh on some parts of the property market.

CoreLogic research director Tim Lawless says the risk from deferred loans has “significantly diminished,” though parts of the market dominated by investors could still feel the impact of deferrals ending.

Banks have not said where most of the remaining deferred loans are located, but Lawless says they are probably concentrated among investors, particularly in inner-city Sydney and Melbourne apartment developments. He believes banks would start being less patient with struggling property investors.

“Just reading between the lines, it seems like there will probably be less flexibility for investors,” he says. “It’s a net negative for the housing market but I think the impact will be quite localised.”

Like the banks, Lawless believes the broader property market has enough momentum to offset the impact of loan deferrals ending, but he does not think the pace of price growth can continue for much longer.

It is clearly not sustainable for Australia to continue notching up the fastest growth in house prices since the 1980s at a time when household incomes are not rising. It will simply get too expensive for buyers to keep bidding up prices.

The end of JobKeeper and other government schemes, including building grant program HomeBuilder, are also likely to temper the red-hot demand for housing in the months ahead.


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New low as Homestar Finance cuts its two-year fixed owner-occupier rate to 1.74%


Homestar is equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Homestar Finance is offering the lowest two-year fixed rate in the home loan market.

Homestar Finance has cut its two-year fixed owner-occupier rate by 14 basis points to 1.74%.

The rate cut move knocks Westpac from the top spot after it offered the lowest rate.

The increased rate competition was dubbed a “raging rate war” by the Mortgage Professional Australia website.

“This loan is the lowest two-year fixed rate on the market and also the lowest overall home loan rate available nationally,” RateCity research director Sally Tindall told The Australian.

“It also has one of the most competitive revert rates at 2.24%.”

Some 450 fixed mortgage rates have been cut over the last two months.

Homestar is also equal lowest with Reduce Home Loans for the lowest variable rate at 1.79%.

Greater Bank has the lowest fixed rate in the market, with its one-year fixed rate sitting at 1.69%, with the rate only available to customers in New South Wales, Queensland and the Australian Capital Territory.


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Warnings over proposed overhaul of responsible mortgage lending

mortgage lending

Record high mortgage lending to owner-occupiers, surging property prices and lenders offering low deposit mortgages could make for a perfect storm if the government’s attempt to repeal responsible lending obligations is successful, critics warn.

They say loosening responsible lending obligations would add fuel to the already hot property market and increase indebtedness, leaving home owners struggling to meet repayments if interest rates were to rise.

Figures from the Australian Bureau of Statistics for January show a 52 per cent increase in the value of new home lending to owner-occupiers compared to January 2020.

The government says repeal of responsible lending obligations is needed to free up credit, particularly to small and medium-sized businesses, and to remove red tape for lenders and borrowers. It says the protections for vulnerable customers are preserved.

The responsible lending obligations have been a bulwark of consumer protections since coming into effect in 2009. They require lenders to make credit assessments and approvals in accordance with the obligations and help ensure people are not being sold into unaffordable loans.

The government decided to pursue repeal of the obligations last year, during the depths of the COVID-19, after consultations with banks, as a way to get credit flowing through the economy again.

But with the economy staging a V-shaped recovery, house prices booming and mortgage lending for owner-occupiers at record levels, critics, including researchers, many consumer rights groups and some economists, say the responsible lending obligations are needed more than ever.

“It’s crazy to think the government is still pushing ahead with the scaling back of responsible lending obligations at a time when the property market is going through the roof,” says Sally Tindall, the research director at RateCity.


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