Australia Property

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Cooling measures unnecessary, says Kelly
THE AUSTRALIAN NOVEMBER 04, 2014 12:00AM

Michael Bennet

Reporter
Sydney
WESTPAC chief Gail Kelly has played down the likelihood of regulators imposing big-bang “macro prudential” measures to cool the investor-led property boom, saying the banks recently passed a system-wide stress test without alarm.

After previously losing market share in mortgages, Westpac’s Australian Financial Services division, which houses its retail bank, St George and sub-brands such as Bank of Melbourne, boosted its cash earnings 12 per cent to $5 billion.

In the second half, AFS added mortgages in line with “system”, or the broader market, stemming the market share bleed in the past two six-month periods when it grew at 0.7 times and 0.9 times, respectively.

Mrs Kelly lauded the achievement as part of broader growth plans, proclaiming the bank in the past six months grew “at or above” system in all of its key product lines, including credit cards, business loans and deposits.

As it is the biggest lender to housing investors at about 44 per cent of its book, analysts have warned that Westpac is the most exposed to macro prudential rules to cool the Sydney and Melbourne property booms.

The Reserve Bank and Australian Prudential Regulation Authority are discussing options after labelling the market “unbalanced” because of the rise in concentration risk in Sydney and Melbourne as almost 50 per cent of new mortgages go to investors.

While experts expect APRA to force the banks to hold more capital against investor loans, Mrs Kelly said the regulator preferred not to intervene and had a strong supervisory record that had held the nation in good stead.

She added that APRA was already softly taking action such as new guidelines for mortgage lending, ensuring boards were alert to the risks and doing stress tests.

“I think they’d like to stop at that set of tools rather than start to intervene with additional policies that actually can be quite distorting,” she said.

“If you go about setting floors or changing parameters, you ­actually can drive unintended consequences.

“APRA have just recently done a detailed review across the sector of our housing portfolios and that came up well for the Australian system.”

New Zealand last year capped the banks’ lending to borrowers with deposits of less than 20 per cent, but Mrs Kelly said it had the unintended consequence of hurting first-home buyers. APRA and the RBA are also against capping low deposit lending.

Echoing other senior bankers such as ANZ’s Phil Chronican, Mrs Kelly said the relatively high level of mortgage lending to investors in Australia was driven by the tax system, including incentives such as negative gearing.

She said Westpac’s investors were typically affluent, older borrowers and the 90-day delinquency profile of its investor book performed better than the bank’s overall portfolio.

Ahead of the Reserve Bank’s meeting today, Mrs Kelly said interest rates would stay flat for the “foreseeable future”.

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Country Garden's Johnson Zhang eyes Harry Triguboff’s Meriton (asking A$10bn)

PUBLISHED: 22 HOURS 47 MINUTES AGO | UPDATE: 8 HOURS 15 MINUTES AGO

Johnson Zhang eyes Harry Triguboff’s Meriton
Country Garden ­Australia’s chief executive, Johnson Zhang, thinks highly of Harry Triguboff. Photo: Ben Rushton
SU-LIN TAN

One of China’s bigger property ­developers, Country Garden, is ­sizing up buying Meriton, the largest builder of apartments in Australia.

Billionaire Harry Triguboff, 81, revealed last week he was in talks with an unnamed Chinese developer to sell the company he founded 50 years ago, ­following discussions with other ­potential buyers.

The asking price: $10 billion.

Country Garden, which sold $11.9 billion of property last year, mostly apartments, and is ­projected to turn over up to $18.5 billion next year, is looking too.

There has been an increasing ­rapport between Country Garden ­Australia’s chief executive, Johnson Zhang, and Mr Triguboff.

“We get along very well. We have talked about how we can expand and progress Country Garden’s ­development in Australia,” Mr Zhang said in an interview.

“He’s my senior and he is teaching me a lot about ­property ­development in Australia.”

While Mr Zhang declined to ­comment on the chances of a sale, in Chinese terms, he said a good business relationship exists between the two men, known as “guanxi” in Mandarin.

“It is still too early to make any ­definitive comments on the Meriton sale. [There is] a long way to go to confirm the sale and the price,” he said.

“But when we meet he talks about selling his company. And if Mr Triguboff wants to sell Meriton, he would want to ensure that it is in the hands of someone who will look after it and grow it.”

A spokeswoman said Mr Triguboff didn’t want to comment beyond last week’s statement.

Valued at $9.6 billion, Country ­Garden is the fifth-largest property company listed on the Hong Kong Stock Exchange after China Vanke, ­Greenland Group, Evergrande and China Poly Group Corporation. Its 2013 net profit of $1.6 billion is expected to grow to $2.2 billion this year.

Country Garden’s business model is close to Meriton’s – it focuses on larger residential developments particularly on inner-city fringes.

The only aspect about Meriton that differs from Country Garden’s business is Meriton’s non-residential businesses – its serviced apartment and construction operations.

While Mr Triguboff has said he had exchanged details of Meriton’s valuation with the proposed Chinese buyer, there is still a question about who Meriton’s next owners would be with his family, particularly his grandchildren, being involved in the company.

Mr Triguboff’s grandson, Daniel Hendler, started working in Meriton this year. His two daughters, Sharon and Orna and their children are involved in the business.

“As for the $10 billion, well that’s Mr Triguboff’s words,” Mr Zhang said.

“To determine if that is a good price anyone would have to run a detailed series of valuations to determine the value of this private company.

“What he says in public may not be the actual amount in the end.

“Meriton doesn’t have public ­information so we cannot comment whether $10 billion is good or not.”

Mr Zhang confirmed he met with Mr Triguboff in China four months ago.

“He may have met with other ­developers, I don’t know,” he said.

The other large property developer to have made a foray into the Australian property market is Greenland Group, which is building Sydney’s ­highest residential tower, the Greenland Centre.

The Australian Financial Review ­contacted Greenland’s chief executive, Sherwood Luo, about Mr Triguboff’s proposed sale.

He declined to comment.

“We really like the Meriton ­business,” Mr Zhang said.

In Chinese, Mr Zhang speaks of Mr Triguboff’s friendship very highly.

“There is a saying, ‘qing chu yu lan’ which means the student has the ­potential to achieve greater from what the teacher has already done,” he said.

The Australian Financial Review

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Housing boom to last at least two more years: CSR
AAP NOVEMBER 05, 2014 2:22PM

BUILDING Products maker CSR expects the housing boom to run at least another two years.

CSR today reported a 48 per cent lift in its first-half net profit to $68.4 million, with earnings from its building products division rising 22 per cent on the back of increased construction activity.

CSR (CSR) chief financial officer Greg Barnes said the pipeline of activity for residential construction looked good and would drive demand for building products.

“I think the market and demand for our products has at least another couple of years to run,” Mr Barnes said.

“I think analysts had it coming on faster and running off quicker than I think it will happen in reality.

“So long as people are employed and confident about their jobs and house prices, they will continue to want to build.”

Mr Barnes said he was unconcerned about the possibility of tighter regulation of banks aimed at cooling investment in the property sector.

He said the banks had put tighter demands on housing loans after the global financial crisis anyway, and a relative shortage in supply of housing, high immigration and a relatively high birth rate underpinned demand for housing.

Tighter regulation over lending may even be beneficial in the long term because it would make the housing industry more sustainable and less prone to shock.

CSR is confident of boosting its underlying profit as the housing boom lifts demand for its products.

The group expects its full year net profit, before significant items, will rise to the upper end of analysts’ forecasts of between $111 million and $134 million.

CSR’s full year net profit result, excluding significant items, for 2013/14 was $72 million.

CSR’s glassmaking business, Viridian, returned to the black in the first half with $500,000 in underlying earnings compared to a $10.6 million loss for the same period a year ago.


Mr Barnes said a restructure of the Viridian business was largely complete and it was now set for slow and steady growth.

In the next four to five years, Viridian could generate earnings above $20 million, after losing $40 million just two years ago.

Mr Barnes said Viridian was aiming to lift its service levels and product offer, particularly in the commercial building sector which demanded heavyweight, higher value glass.

Viridian would also promote sales of more energy-efficient glass in the residential sector.

Earnings from CSR’s aluminium business also rose, by 71 per cent, amid higher prices and improved smelter performance.

CSR’s property division tripled its earnings in the first half, to $20.4 million, and the company expects even stronger growth in the second half.

Shares in CSR were 10 cents, or 2.86 per cent, higher at $3.60 at 1.53pm (AEDT).

AAP

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Capital-city rents hit a wall as apartment stock floods in
THE AUSTRALIAN NOVEMBER 07, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney

Cracks widen in housing market

Property returns slowing.Property returns slowing. Source: TheAustralian
Cracks widen in housing marketProperty returns slowing.

CAPITAL city rents are growing at their slowest rate in more than a decade, with a surge in new apartment stock the most likely contributor to the slowdown, ­according to RP Data.

The figures show rents across Australia’s big cities grew by just 1.8 per cent in the past year, compared to a five-year average growth rate of 3.8 per cent.

Saul Eslake, Bank of America Merrill Lynch’s economist, said it was “surprising” rental increases were so slow. However, there had been previous indications rents were slowing, with consumer price index figures showing only a 2.5 per cent increase for the ­financial year ending in June.

Rents continued to record near-trend growth in Sydney, up 3.5 per cent, and falling 3.1 per cent in Perth, 4.9 per cent in Canberra and 0.1 per cent in Darwin.

Still, in Sydney’s inner west, rising rents remain a problem for ­Jasmin Kaleita and her friends, who gave up searching for a new home after finding they would have to pay substantially more.

“We were looking for a place in the last few months, but we ended up deciding we couldn’t afford to move, even to somewhere similar in the same area,” she said.

“We’re paying $650 for a three-bedroom now, and now everything seemed to be $740 and up,” she said.

Ms Kaleita said she had lived in the terrace near St Peters for more than a year and had not had a rent increase. “We’re hoping it’s not going to go up any time soon.”

While slowing rent rises might be a boon for tenants, property investors are seeing returns drop. Rental yields are at their lowest in nearly five years, as rapidly rising property prices outpace sluggish rent growth. According to RP Data figures, Melbourne’s average rental yield was now 3.3 per cent, the lowest recorded in a capital city, the RP Data figures showed. Sydney recorded average yields of 3.7 per cent, the lowest since 2005.

Mr Eslake said it appeared many landlords did not want to make too much in rent because of the tax implications.

“That would run contrary to the philosophy of investment in Australia, that you have capital growth rather than rental income and so your finance costs are subsidised through the tax system to the greatest extent possible.”

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Reserve wonders why house price boom not translating to home sales
THE AUSTRALIAN NOVEMBER 08, 2014 12:00AM

David Uren

Economics Editor
Canberra
HOUSE prices are booming, but the Reserve Bank is puzzled about why not many home owners are taking advantage of the market conditions to trade up into a bigger house.

Turnover in the housing market normally moves in lock-step with prices, but the market surge in the past two years is not generating a higher volume of sales, which in both the hot markets in Sydney and Melbourne remain well below the long-term average.

The Reserve Bank suggests big increases in stamp duties are partly to blame, while uncertainty about the economic outlook is making homeowners wary about taking on hefty new debts.

State governments have been lifting stamp duties, while the increase in house prices pushes an increasing number of home buyers above higher thresholds at which stamp duty premiums apply.

“In NSW for instance, the stamp duty paid on a median-priced home has grown to around 25 per cent of annual disposable income per household, from close to 10 per cent in 1991,” the Reserve Bank says.

Normally, an increase in house prices increases the net wealth of home owners, which enables those who previously could not save a large enough deposit to trade up to a more expensive dwelling.

“One possibility is that a reluctance to trade up homes reflects households generally becoming less willing to take on additional debt in recent years.”

Households are now carrying much higher debts than was the case in the early 2000s, when there was a big boom in house prices.

“Although interest rates are currently low, the expected repayment burden on loans is at 10-year average levels,” the bank says.

In Melbourne and Sydney, the share of income required to service an average loan over the next decade is close to an all-time high, despite mortgage rates being the lowest on record.

The other reason why people may be reluctant to trade up their house is that growth in labour income has stalled. It has risen by just 2.7 per cent a year over the past two years, compared with an average of 6.2 per cent over the previous decade. Most people expect wage growth to remain subdued.

“Repayment obligations, in combination with uncertainty about future labour income, are an important consideration.”

The major banks have told the RBA that this is leading an increasing share of home owners to opt for interest-only loans, increasing their flexibility in meeting repayments.

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Mortgage delinquency rates in balance on jobless
THE AUSTRALIAN NOVEMBER 08, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney
REIQ generic house sale

The delinquency rate is at historic lows following the change in lending practices since the global financial crisis Source: Supplied
AUSTRALIANS have remained largely immune from the mortgage stress affecting parts of the property market in Europe and the US, with delinquency rates at a record low, according to figures released by the nation’s biggest mortgage insurer.

But the Genworth delinquency figures show Queensland and South Australia are suffering from disproportionately higher rates than any other state, and come as the unemployment rate remains stubbornly high.

Genworth said 0.36 per cent of its mortgage portfolio were delinquent, with the lowest level of 0.21 per cent recorded in the Australian Capital Territory, and the highest, 0.49 per cent, in Queensland.

Delinquencies peaked in 2012 at 0.53 per cent, and have been lowering ever since, although there has been a slight increase in the past six months as Genworth has aggressively increased the loans it insures.

But delinquencies will only increase over the next year, according to Andrew Beer, the director of the Centre for Housing, Urban & Regional Planning at the University of Adelaide.

“The delinquency rate is at historic lows, and they remain low by international standards,” he said.

“One of the key issues is the change in lending practices since the global financial crisis and that interest rates have remained very low since then.

“Non-conforming lending practices have disappeared, although there are some indications some of those practices are coming back particularly in Sydney and Melbourne where the market is booming and finance is in high demand.”

The latest Fitch Ratings analysis, released at the end of September, also indicate delinquencies have hit their cyclic low. Fitch reported delinquencies of more than 30 days rose to 1.22 per cent for the three months to the end of June, “rather than experiencing the usual second-quarter seasonal decrease”.

Professor Beer said the higher rates recorded in Queensland and South Australia, where delinquencies are at 0.43 per cent, come down to significant populations with low incomes.

“South Australia has the lowest average income of any mainland state, but house prices are not priced proportionally lower, while Queensland has a large and disperse low-income population often employed in vulnerable sectors.

“In South Australia that higher rate could partly reflect a process of economic restructuring with many workers effectively forced out of employment.”

The higher rates of delinquency in Queensland and South Australia correspond with higher rates of unemployment. While Australia’s unemployment rate remained steady at 6.2 per cent, according to this week’s Australian Bureau of Statistics figures, Queensland’s jumped from 6.3 per cent to 7 per cent. South Australia’s remained at 6.7 per cent, compared to 5.7 per cent in NSW.

However, Fitch expects arrears to remain stable until the end of the year.

[newbie11]

I know this is not really a property thread. Reading these news is interesting. People tell me to buy Queensland cos it's affordable. Yet income is lower n delinquency is higher. Sydney is too exp but every project is sold out. Melbourne is oversupply yet rental is easy. Damn this is hard. Haha

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Invest in the right property developer... easier and more liquid... smaller outlay...

I know this is not really a property thread. Reading these news is interesting. People tell me to buy Queensland cos it's affordable. Yet income is lower n delinquency is higher. Sydney is too exp but every project is sold out. Melbourne is oversupply yet rental is easy. Damn this is hard. Haha

[newbie11]

That I really need to learn. Who has the right supply of land? Who will benefit from current bull run? Weekend homework

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Housing boom hits renovations, now at a four-year high
PUBLISHED: 7 HOURS 19 MINUTES AGO | UPDATE: 4 HOURS 0 MINUTES AGO

Housing boom hits renovations, now at a four-year high
Some experts say it’s only worth renovating if you have a great location, otherwise you should move.
Residential
SAMANTHA HUTCHINSON

Buoyed by rising property prices, home owners are feeling wealthier and are choosing to renovate in greater numbers than any time in the past four years.

“There’s an optimism out there. All the builders we know are busy,” Rob Brown said, principal architect at Casey Brown. “Its not back to boom times by any stage, but there’s a healthy feeling in the market.”

Approvals for home alterations and additions have hit a four-year high, according to ABS building approvals data.

“This sort of data is definitely affected by the value of people’s homes,” BIS Shrapnel analyst Kim Hawtrey told AFR Weekend.

“We’ve seen an increase in house prices, and its makes people feel wealthier . . . makes them feel as if improvements they make to their home are worthwhile and likely to generate a good return.”

Some home owners could be choosing to renovate and to build new space within an existing home rather than running the risk of buying a new home at the top of the market, Dr Hawtrey said.

But it is more likely that consumers are capitalising on cheap loans, low interest rates and a feeling of wealth triggered by rising asset prices, known as the “wealth effect”.

“There’s a borrowers benefit from low interest rates and a wealth effect, and they’re the two main factors at play,” Dr Hawtrey said.

While climbing house prices might put some potential home buyers off the idea of buying a new home, renovations aren’t necessarily a more prudent alternative.

“It is generally more economical to move house if you want more room, rather than trying to build on to it,” Ian Stapleton said, a partner in Clive Lucas Stapleton.

“But if you’ve got a wonderful location or a sentimental reason, you might want to stay where you are.”

The architect, renowned for heritage restoration and conversions, has noticed a rise in enquiry over the past three months, which he attributes to a higher level of political stability and the dissipation of political rhetoric on themes such as belt tightening and austerity.

“Treasurers talking about over­spending and having to cut back has that ­dampening effect on people’s confidence,” Mr Stapleton said. Mr Brown has also noticed a spike in enquiries for renovations, which he puts down to a perception that renovations will generate good returns come sale time.

“House prices going up allows people to feel that if they spend money on their home, and then for whatever reason they have to sell, that they’ll get their money back,” Mr Brown said.

Sydney-based architect Brown has just completed a multimillion dollar renovation on a waterfront home in Palm Beach that has added two additional levels to an original single-storey bungalow.

“They purchased the home for about $30,000 about 30 years ago, so they’re in a situation that if they had to sell it now, they’d definitely make more,” he said.

The Australian Financial Review