CIMB Bank joins our panel

I’m delighted to announce the added lending partner, CIMB Bank-Singapore who joins our panel today.

CIMB Bank are aggressive for Australian business and we look forward to working with them for our Australian property purchasers. As part of our accreditation, they have also announced the addition of Brisbane properties together with Melbourne, Sydney and Perth.

If you’re purchasing an Australian property, talk to an Australian expert. We’ll not only source the best mortgage deal but we’ll find a lender that will approve you.

David Moss

Managing Director

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Banks get tough on interest-only loans

More major and non-major banks are bringing in tougher conditions on interest-only loans thanks to increased regulatory pressure.

Amongst the big four, Westpac decided to reduce the maximum allowable interest-only term to 10 years from 3 October, a spokesperson told Australian Broker. Previously, this term could be extended up to 15 years.

Additionally, the bank will also no longer offer the 12-year fixed rate investment property loan and its low documentation equivalent.

Commonwealth Bank brought in tougher conditions for those seeking to switch to an interest-only loan back in July.

“Commonwealth Bank constantly reviews and monitors its suite of home loan products and services to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs,” a spokesperson told Australian Broker.

“As part of our commitment to responsible lending, whenever a customer applies or seeks to make changes to their loan, we always enquire into their needs and objectives. Customers who switch to interest-only as the repayment option must advise us of the reason.”

Agencies such as the Australian Prudential Regulation Authority (APRA), the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) have been placing increased pressure on all banks.

Martin North, principle of Digital Finance Analytics, told the Australian Financial Review that lenders were offering more selective discounts instead of slashing rates.

“Earlier in the year there was a load of rate cutting going on, and a reduction in discounts from advertised rates – this is now reversing as loans are being repriced up, allowing for greater selective discounts.”

The non-majors are also following suit with Bendigo Bank and Adelaide Bank reducing the maximum interest-only period from 10 years to seven.

As a result of this pressure, the value of new interest-only loan approvals has dropped from around $44b in June 2015 to $28.1b by March this year, according to a review of interest-only home loans by ASIC. This figure then bounced back to $35.5b in the second quarter.

Market share for interest-only loans from June 2015 to June 2016 also dropped from 46% to 36%.

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A Chan- Singapore

Hi David, I just wanted to say thank you for all your help in arranging my financing for my purchase. Shelley has just advised me that the purchase has now settled. It was a real pleasure working with you and I will recommend you to all my friends who are also looking at buying property in Australia. Hopefully, we’ll also be able to work on another property soon.

 

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Email server issue

Due to server related issue, we have experienced email issues on the 22nd-23rd September. We suspect some emails have not been delivered. We hope to have the situation resolved shortly. In the event you have not had a response, please call us and we will immediately rectify. Apologies for this. David Moss GM

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RBA downplays property bubble fears in latest meeting minutes

Capital city land prices continue to climb

The cost of vacant land has continued to increase in capital cities over the past year providing the impetus for growth in the cost of established housing stock.

The median price of vacant land sales nationally as at June 2016 was recorded at $212,000.  The median price has actually decreased by -2.3% over the past 12 months.  Although nationally median prices are lower there has been a divergence between price growth across the capital city and regional markets.

As at June 2016, the median vacant land sales price was recorded at $270,350 across the combined capital cities and $164,250 for the combined regional areas.  Over the past year, combined capital city selling prices have increased by 8.1% while combined regional area sales prices have fallen by -1.9%.  The median selling price for combined capital city vacant land is now 65% higher than median prices in regional areas, the largest differential since September 2003.

The median size of residential land sales as at June 2016 was recorded at 450sqm within the combined capital cities compared to 812sqm across the combined regional areas.  The median land size has held reasonably steady (+0.4%) over the year across the capital cities and is 11.5% higher across the combined regional areas.  The chart shows that capital city vacant land sizes may have reached a low point having remained at around current levels for some time.  Meanwhile, regional market land sizes have increased a little over the past year and are substantially larger than those within the capital cities.

Based on the selling prices of vacant land and the size of the lots, the rate per square metre of vacant land as at June 2016 was recorded at $584 across the combined capital cities and $177 across the combined regional areas.  The rate per square metre for vacant last sold has increased by 4.3% over the year across the combined capital cities and has fallen by -17.0% across the combined regional areas.  On a rate per square metre basis, capital city vacant land is now 231% more expensive than land outside of the capital cities which is the largest differential on record.

The cost of vacant land in Sydney is significantly higher than in all other capital cities.  It is also noticeable how strong the increases in land prices have been in Sydney and Melbourne over the past year, with rises in excess of the rise in home values.  Each city except Hobart currently shows a median lot size below 500sqm.  Interestingly, median lot sizes have increased over the past year in a number of capital cities including Sydney and Melbourne where median land prices have increased significantly.  On a rate per square metre basis, housing costs have increased across each capital city over the past year.  Again Sydney and Melbourne have recorded the greatest increases over the period.

The cost of housing in the combined capital cities has increased over the past year and this data shows that a significant driver of the increase has been the cost to purchase land.  It is no wonder median house prices in Sydney are hovering around $900,000 when new vacant land (most of which is on the outskirts of the city) has a median price in excess of $422,000.  An increase in the amount of developable land, as well as lower fees and charges applied to land development, as well as more competition amongst developers would likely reduce land costs and potentially slow the escalation in housing costs, particularly in Sydney and Melbourne.

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RBA loses credibility as housing boom continues

Interest rates slashed to fresh record low of 1.5pc by Reserve Bank

The Reserve Bank has cut the official interest rate to a fresh low of just 1.5 per cent, in a desperate effort to stoke price growth.

The RBA last cut its overnight cash rate target in May, taking it to 1.75 per cent, following weak consumer price data in the March quarter.

ABS June quarter inflation data, out last Wednesday, showed consumer prices rose just 1 per cent over the past year, with the Reserve Bank’s preferred measure also well below its 2-3 per cent target.

After that release, markets priced the chances of a rate cut as roughly 50-50, but bets had since gone up to a 75 per cent chance of a rate reduction.

The odds were similar when looking at economist forecasts, with 20 of 25 surveyed by Bloomberg expecting a rate cut today.

Most experts expect today’s rate cut to be the last, but about a third of the analysts surveyed by financial comparison website Finder are expecting more cuts, with six out of 41 expecting a trough of 1 per cent or less.

RBA’s rate dilemma

.
The Reserve Bank sets one cash rate for the nation, but it is simply not appropriate for some states, explains Stephen Long.

Finder’s Graham Cooke said it is important for consumers to re-evaluate their current home loan to make sure their bank is passing on the reduction in full.

“If you had a $300,000 mortgage with an average standard variable rate of 4.93 per cent and manage to get the full discount of 0.25 percentage points off your interest rate, this could pocket you almost $50 per month, or a whopping $16,325 over the life of your loan,” he observed.

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Inflation ‘much weaker’ than RBA’s target band

Inflation ‘much weaker’ than RBA’s target band

GDP up 3.1pc, fastest annual pace since mid-2012

Stella Wong- Singapore

Highly recommended! Recently purchased a property in Sydney and sourced David for my loan. Very happy with the service provided and the loan package was very good.

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UOB suspends London property loans after Brexit

SINGAPORE: United Overseas Bank (UOB), Singapore’s third-largest lender, has suspended its loans programme for London properties in the wake of uncertainties caused by Britain’s vote to leave the European Union.

UOB would be among the first banks in Singapore to turn cautious on such lending, even though it is not a large amount, as Brexit spooked global markets and pushed the pound to multi-year lows.

“We will temporarily stop receiving foreign property loan applications for London properties,” a UOB spokeswoman said in an email.

“As the aftermath of the UK referendum is still unfolding and given the uncertainties, we need to ensure our customers are cautious with their London property investments.”

Singapore’s biggest lender, DBS Group Holdings, said it continued to provide financing for property purchases in London but was advising its customers to be cautious.

“For customers interested in buying properties in London, we would advise them to assess the situation carefully before committing to their purchases as there could be potential foreign exchange and sovereign risks,” Ms Tok Geok Peng, executive director of secured lending, consumer banking group (Singapore) at DBS Bank, said in an email.

The Singapore dollar has gained about 10 per cent against the British pound since the referendum.

“There have been London properties available for the last few months before the Brexit. The question is whether these properties can still continue to receive buyers in the short-term,” said Ms Alice Tan, head of consultancy and research at Knight Frank Singapore.

Property consultants say data on the number of properties purchased by Singaporeans in the United Kingdom is not tracked that closely. Banks do not disclose lending data for UK property purchases.

UOB said it was monitoring the market environment closely and would review it regularly to determine when it could resume its property loan offering.

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Australia at second spot in transparent real estate market index

The ease of doing business in Australia, with its stable and transparent regulatory and legal system, strong ethical governance and high professional standards, has led to a significant rise in foreign capital inflows for the residential and commercial sectors, according to JLL.

The world’s 10 most transparent markets account for 75 per cent of global direct investment into commercial real estate and are home to nearly half the world’s 2000 largest public companies. Australia has moved up one notch to second place.

The United Kingdom, Australia, Canada and the United States hold the top positions, while the low transparency and opaque categories are dominated by parts of Africa, Asia and South and Central America, which are deemed “development” economies.

The desire for countries that offer good business conduct was borne out by the recent revelations of the Panama Papers, which, property agents and investors say, have led to mounting pressure for greater real estate transparency.

Global uncertainty caused by the recent Brexit​ vote is also drawing cash out of Britain to other parts of the world, in the short term, including Australia, despite the uncertainty caused by the recent federal election, where no party has yet claimed victory.

In a report from JLL, it says this had “put the fight against corruption decisively on the international political agenda”.

In its latest JLL Transparency Index, compiled every two years, foreign investors accounted for a record 42 per cent of investment into the Australian commercial property market in 2015, or about $31 billion. This percentage is about double the 10-year annual average.

The global index measures transparency by looking at factors including market data availability, governance, transaction processes, property rights and the regulatory and legal environment across 109 countries.

JLL head of Australasian research Dr David Rees said that as capital allocations to real estate grew, investors were  demanding further improvements in transparency. He said Australia maintained its position as the “gateway into Asia Pacific and the fast growing south-east Asian economies”, which is attractive for non-Asian investors.

“Technology is allowing a more forensic assessment of real estate market patterns, allowing for greater analysis of transparency levels across markets while the rapid growth of cross-border investment means that investors place a big premium on accurate and timely information,” he said.

As capital allocations to real estate grow, investors are demanding further improvements in transparency, even among the world’s most regulated real estate markets.

“Transparency is very high in Australia for a numbers of reasons.  In comparison with many markets in the region, Australia also has a strong legal framework to define and protect property rights and an open and established bidding process,” Dr Rees said.

 

 

 

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CoreLogic says Sydney, Melbourne house prices up in June despite cooling

Sydney and Melbourne housing prices continue to defy a cooling, posting another price rise in the month of June, according to Corelogic’s June Home Value Index.

While foreign buyers were once thought to be mainly responsible for the the rise in house prices in the last three years, local homebuyers and investors showed their buying power buoyed by record low interest rates. The major banks have all ceased foreign lending.

“The impact of interest rate cuts from May is working its way into the system now,” Corelogic senior research analyst Cameron Kusher said.

“It’s not exclusively foreign buyers but local buyers…who have seen their home prices increase by half, so the wealth effect is high.”

Sydney house prices have risen another 1.2 per cent in June, but lower against the May rise of 3.1 per cent.

Melbourne rose 0.8 per cent versus 1.6 per cent last month.

Hobart also continues to show strong capital growth scoring a 1.8 per cent rise in housing prices in June.

But the rest of the other capital cities recorded a fall in housing prices; as a result, capital city dwelling values barely rose at an overall 0.5 per cent in June.

 For the first half of the year, capital city dwelling values have moved 5.5 per cent with the most substantial capital gains located in Sydney at 8.9 per cent, Hobart, 8.5 per cent and and Melbourne at 5.8 per cent. These numbers were smaller than the same time last year.

“While the higher rates of capital gains in Sydney and Melbourne can be tied back to strong economic conditions, and high rates of population growth, the same cannot be said for Hobart where economic conditions and migration rates are gradually improving from a low base,” Mr Lawless said.

“The strength in the Hobart market comes after a long period of underperformance…potentially, the Hobart housing market is being fuelled by the sheer affordability of housing and a renewed trend towards Melbourne and Sydney buyers unlocking their equity to make lifestyle housing purchases.”

Gains starting to slow

 While the rebound in the last few months watered down the cooling that started in the final quarter of 2015, Corelogic research director Tim Lawless said the those gains are starting to slow.

“The monthly growth rate reduction is likely to be very much welcomed by state and federal government policy makers and regulators who may be concerned about a sustained rebound in capital gains,” he said.

Mr Kusher also predicted there would be reprieve for Sydney and Melbourne in the second half of the year and spring, the traditional property buying season, could be a “fizzer”.

The uncertainty caused by the Brexit vote is likely to slow down price growth as is the slower turnover of stock in Sydney and Melbourne, Corelogic said.

 “Some positive news for Sydney buyers is that there are early signs that Sydney’s housing market may be starting to turn in favour of the buyer,” Mr Lawless said.

“We’re seeing homes in the city taking longer to sell and vendors are starting to offer larger discounts on their asking prices in order to make a sale.”

“The typical Sydney home is now taking 40 days to sell compared with 26 days a year ago and discounting rates have risen from 5.5 per cent a year ago to 5.6 per cent.”

“In balance, Australia’s two largest cities are facing increased affordability challenges that are likely to negatively impact the trajectory of dwelling values and activity as more prospective buyers are blocked from the market.”

 As a consequence of rising prices, gross rental yields continue to slip nationally, pushed mainly by the deterioration in Sydney and Melbourne.

The gross yield on a house is now averaging 3.2 per cent and units are averaging 4.1 per cent.

 

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L Murphy- Singapore

Hi David,  Thank you so much for all your help getting the mortgage for the land purchase arranged and for helping ensure the settlement happened so quickly.

 

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David Moss talks Non-Resident lending with Straits Times

Singaporeans looking to buy homes in the popular market of Australia may face more hurdles after major Australian banks tightened lending criteria to non-residents in recent months.

The Commonwealth Bank said it will no longer approve applications that cite self-employed foreign currency income. “The Commonwealth Bank has tightened requirements for some temporary residents in the areas of self-employed applicants and temporary visas who are seeking to borrow for residential purposes,” a bank spokesman told The Straits Times.

The lender will also reject foreign-currency income of temporary Australian residents, and temporary Australian residents with Australian-dollar incomes can now borrow only up to 70 per cent of the value of the property, down from 80 per cent previously.

Another major bank, the National Australia Bank (NAB), has cut the maximum loan-to-value ratio from 80 per cent to 60 per cent for non-resident home loan applicants. It will also take a “shading” – or a discount – of up to 40 per cent on the applicant’s income when assessing the borrower’s ability to service the loan.

Mr Andrew McCasker, NAB head of property financing for South and South-east Asia, said: “NAB, through our Singapore office, is still supporting borrowings for Singaporean residents who are looking at investing in the Australian and New Zealand market.”

 Westpac, meanwhile, has said it will stop making home loans to non-residents, temporary visa- holders or those with foreign self- employed income. The lender also told The Straits Times that it can offer Australian property loans to “nationals and residents of Singapore” via branches here.

However, analysts say investors should note that loans originating from Singapore will be subject to the total debt servicing ratio (TDSR) framework.

Despite the more stringent lending rules, mortgage brokers and property agents do not think Singapore investors will be badly hit.

“Singaporeans, in general, are still viewed rather favourably as they are able to produce income or bank statements from reliable sources,” said PropNex International head of international markets Anson Tay.

Australian mortgage advisor David and Partners, which counts Singaporean investors as a big portion of its clientele, said there are still avenues to obtain home financing.

Said its managing director David Moss: “We have 20 lenders in Australia on our panel, and they are still lending… Probably the biggest change is not so much that they are not lending, it is the additional documentation required for loans.”

Reapfield Property Consultants, which focuses on marketing Australian property, said some investors have turned to creative options. “Some clients will take advantage of the lower interest rate here by borrowing against their property in Singapore, provided they are not affected by TDSR. They then take the cash to fully pay for the Australian property,” noted Reapfield Property Consultants executive director Peter Thng.

The firm has marketed various landed home projects in Melbourne, including Manor Lakes, Jubilee and Bridgefield estates.

Mr Thng said local investors are more concerned about the additional stamp duty surcharges on foreign property buyers in Australia.

From last Tuesday, foreigners buying homes in New South Wales have been required to pay a new 4 per cent stamp duty surcharge, making it the second state in Australia to impose such a duty.

In the state of Victoria, the additional levy – currently 3 per cent but set to rise to 7 per cent from July 1 – was implemented on foreign property purchases last year.

In Queensland, with Brisbane as its state capital, the state government is planning a new 3 per cent foreign property surcharge, expected to kick in this October.

Australian government data showed that Chinese investment in Australian real estate doubled to A$24 billion (S$24.3 billion) last year, from A$12 billion in 2014.

China was the top property investor, followed by the United States with A$7.1 billion, Singapore with A$3.8 billion and Malaysia with A$3.4 billion. Large Singapore companies have invested in the property market in Australia.

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Brexit to boost Aus property’s safe-haven status

Brexit will boost Australia’s residential property market as the UK decision to leave the European Union will increase perceptions of the market’s safe-haven status, observers say.

Nerida Conisbee, the chief economist at property-listing company REA Group, shrugged off a question that uncertainty created by the UK’s unexpected vote to leave the 28-nation EU bloc would trigger a sharp fall in Australian property prices.

If anything, it would boost demand for Australian real estate assets, Ms Conisbee said.

 “If you’re a pension fund in Europe, and you’re looking at London or you’re looking at Australia – whether Sydney or Melbourne – then all that turmoil makes Sydney or Melbourne look like a great investment,” she said at a lunch hosted by the Australian Israel Chamber of Commerce.

The local property market typically only suffered large, sudden falls as a consequence of large macroeconomic events such as a surge in unemployment or drop in economic growth and neither of these was likely, Ms Conisbee said.

“Overall, I’m pretty optimistic about Australian property. I’m really optimistic about Sydney, just given the supply issues, and Melbourne, to a limited extent.”

The referendum result that will keep rattling markets this week and in time reshape the position of Britain, the world’s fifth largest economy, will create an opportunity for markets seen to offer more stability, but in contrast to financial markets nothing will happen straight away, said Chris Mourd, LJ Hooker’s head of real estate.

 “The reality is there isn’t going to be an immediate impact to Australian property,” Mr Mourd said. “What you’re probably going to see is the investor saying, ‘We want to go somewhere we can project out over the next few years and with some level of stability’.”

Falling prices of equities and other more liquid investments would also prompt local investors to take another look at real estate, he said.

“Most people would have woken up following the Brexit announcement and been very concerned about their superannuation,” Mr Mourd said. “People will be seriously looking at bricks and mortar as a serious option. A lot of people will be doing the numbers on that.”

But the benefit to Australia’s property market may not be uniform. Buyers’ agency Secret Agent said demand for top-end properties could stall as global high net-worth investors – who typically buy prestige bolt holes in a handful of different cities – could go into lockdown while they wait to see the effect of the Brexit vote on their UK holdings.

 Low stock levels are already pushing prices of premium homes higher. On Saturday, a four-bedroom house at 7 Lambeth Avenue in prestigious Melbourne suburb Armadale sold for $2.76 million, a price buyers agent David Morrell said was “silly”.

“People are paying $7300 per square metre for land that was selling at $4000 only 18 months ago,” Mr Morrell said.

Brexit-related uncertainty meant more potential vendors would keep their premium homes off the market for longer while they assessed the fallout, he said.

“What it will do is cause vendors not to put properties for sale,” Mr Morrell said. “This exit thing will keep it a lot harder. And I think it’s the same in Sydney.”

 

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SG Chua-Singapore

Thanks David for the smooth loan application, approval and settlement. My other mortgage agent screwed up even though I got an IPA from them before committing on the property. After 11 days of waiting, thru and fro with the other agent, I applied through David and got my loan approved in 5 days. I have not got any approval via the other mortgage agent but got a $280 valuation charge for nothing.

So I would recommend you speak to David first.

 

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NSW unveils tax plan for foreign investors

NSW unveils tax plan for foreign investors 
The New South Wales government hopes to claim an additional $1 billion in revenue over the next four years after formally announcing its taxation plans for foreign property buyers.

It had been speculated that the NSW government were considering hitting foreign investors with a higher rate of land tax in the upcoming budget, but Treasurer Gladys Berejiklian has announced the tax increases will go further than that.

Berejiklian yesterday announced that from 21 June foreign buyers of residential real estate in NSW will face an additional stamp duty surcharge of 4%, while the start of the 2017 land tax year will bring 0.75% additional surcharge for foreign buyers.

The announcement means that NSW’s tax plan for foreign buyers will fall in the middle ground between that of Queensland and Victoria.

Victorian Treasurer Curtis Pitt has recently announced that foreign buyers will face a stamp duty surcharge of 7% and a land tax surcharge of 1.5%, while Queensland Treasurer Curtis Pitt last week announced a stamp duty surcharge of 3% for foreign buyers in his state.

Aussie house price growth falls down global rankings 
Despite house prices across the country recording near double-digit growth in the 12 months to March 2016, Australia has fallen out of the world’s top five locations for house price growth.

According to the latest edition of the Knight Frank’s Global House Price Index for the first quarter of 2016, house price growth in Australia was the sixth best in the world over the year to March at 8.7%.

While still an impressive rate of growth, that annual increase was not enough for Australia to keep the fourth place it had recorded in the previous edition of the index across the December 2015 quarter.

Michelle Ciesielski, Knight Frank’s Australian residential research director, house price growth in Australia has likely entered a more healthy point in the cycle.

“Overall growth in annual capital values has returned to more sustainable levels in 2016 – close to that experienced just over two years ago in the Australian mainstream housing market,” Ciesielski said.

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RBA announces cash rate decision

The Reserve Bank of Australia has left the official cash rate on hold at 1.75%, after a surprise drop in May.

Economists and analysts unanimously expected the cash rate to remain steady today, according to finder.com.au’s monthly Reserve Bank survey.

However, CoreLogic’s head of research, Tim Lawless, said today’s decision was made despite conflicting economic trends.

“On one hand we have an economy that is growing at just over 3% per annum, low unemployment and a re-accelerating housing market,” Lawless said.

“On the other hand the RBA is confronted with a core inflation reading which is at a record low as well as the lowest wages growth on record.”

He said the prospect of a further rate cut later this year is “still well and truly on the cards”, and he is not alone. According to the finder.com.au survey, more than two thirds (68%) of those surveyed predict there’s a further cut on the way this year.

Like Lawless, most believe the cut will come in August after inflation figures are released in July.

“If the June quarter inflation data, which is out a week before the RBA’s August board meeting, provides another weak reading, the chances of a rate cut in August are high,” he said.

But the housing market will be a concern for the central bank, Lawless said.

“CoreLogic reported a 1.6% rise in capital city home values last week, following a 1.7% rise in April.  The stronger housing market conditions have been enough to reinflate the trend rate of growth which is something the RBA and the banking sector regulator are likely to be keeping a close eye on.

“Strong housing market conditions probably wouldn’t be enough to block a further rate cut, however, if the renewed growth trend continues, there is the potential for a further regulatory response that could cool housing market demand while at the same time allowing monetary policy to stimulate the broader economy.”

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Lendlease’s Darling Square sells out in four hours

Lendlease sold all 391 apartments of the third and final stage of its Darling Square apartments on Saturday, collecting about $460 million.

In a four-hour frenzy, a mostly domestic group of 400 buyers, who started turning up from 8am, scooped up the apartments priced between $630,000 and $3.5 million.

“This time around there were a substantial increase in domestic buyers. People see the market in quite strong conditions,” CBRE director of residential projects Murray Wood said.

“The banks are still lending mainly to seasoned property buyers who have some equity behind them.

The glaring difference with this round, compared to the first and second stage sellouts in 2014 and 2015, was the absence of foreign buyers.

It is understood that nearly all the buyers were local, many returning from earlier rounds.

There were also strict identity and background checks, some buyers said.

“People talk about the Chinese buyers pushing up prices, but now we know it’s domestic buyers who are also doing that,” another CBRE agent said.

Darling Square’s appeal lies in its core CBD location, next to Chinatown and in the middle of Darling Harbour.

The 1500-apartment development, which includes student accommodation, commercial and retail space and a work hub for developing ideas, has everything at its doorstep including the new entertainment, convention and exhibition precinct and Barangaroo a short walk away.

It is no wonder there was a scramble to buy Darling Quarter’s apartments. Prices were competitive with studios starting at $630,000 and one-bedroom apartments with no car spaces at $750,000.

Compare that with Crown Group’s Waterloo project, Infinity, which was also priced from $650,000 but is several train stops away from the CBD.

Nearby, Auswin TWT’s $300 million New Life/Ultimo residential project at Tabcorp headquarters in Sydney’s Ultimo also had a soft launch.

Sales data have not been released but last Wednesday at least 20 deposits were taken during its VIP launch, a spokeswoman said.

Sydney was not the only city having a buoyant weekend with off-the-plan CBD sales – but for different reasons.

Sydney investors, taking advantage of Brisbane’s lower apartment prices, picked up about $8 million worth of apartments at Fortitude Valley’s “The 28″ apartment project by developer DevCorp.

 The 139 apartments were priced from $455,000.

 

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Morgan Stanley tips RBA to cut rates to 1pc, ASX at 4800

Morgan Stanley has added its voice to a gloomy chorus forecasting deep cuts to interest rates, expecting a fall to 1 per cent. But the weakening impact of central bank stimulus means the sharemarket will find little joy, leading the investment bank to stick to its year-end target of 4800 points.

In a bearish note to clients, Morgan Stanley strategists Chris Nicol and Daniel Blake tip the Reserve Bank of Australia will cut the official cash rate to 1 per cent by the first half of 2017.

They say the government’s conservative approach to infrastructure stimulus and the housing cycle at its peak, the need for a weaker currency will force the central bank to cut deeper into its easing cycle.

It comes after Macquarie Bank last week also forecast interest rates to fall to 1 per cent or lower, lamenting the lack of fiscal stimulus that left the RBA with the responsibility to keep a lid on the currency

However, Morgan Stanley says the effect of the cut will be more about risk management than economic stimulation.

“Like other [developed markets], Australia has passed the inflection point of outsized positive impacts from easier monetary policy,” the strategists said.

Australia had been removed from the challenges of flagging inflation and growth that have plagued its developed markets peers, but that changed after the disappointing first-quarter inflation reading, which fell below the RBA’s 2 to 3 per cent target range.

But while the sharemarket has embraced the central bank’s first cut in a year in May, adding around 2 per cent since, the disconnect between companies’ weak earnings per share growth and high valuations means the rate boost won’t turbocharge share prices.

Morgan Stanley has kept its year-end target of 4800 – a fall of more than 9 per cent from its current level near 5300 points – that it set at the beginning of the year.

“The next move lower in rates, in our view, will have an objective of risk containment, and will be unlikely to turn market earnings momentum in the short term,” the strategists said.

Pressure on bank margins

Among the sectors to be hurt by a rate cut are the banks, which account for the biggest industry in the local sharemarket. A rate cut would put pressure on net interest margins, which is not being factored into consensus estimates, the strategists warned.

 Each 25-basis point cut – a fall to 1 per cent would require three such cuts from its current level at 1.75 per cent –  would reduce the margins of the big banks by around 2 to 3 basis points.

The requirement on the banks for a 100 per cent net stable funding ratio by January 2018 will mean the banks will become more competitive in their deposit rates.

But lower cash rates should mean investors will remain drawn to the relatively high dividend yield of the banks at around 6 per cent, the strategists said, however they expect payouts to be cut in 2017.

A 75 per cent fall in interest rates would have a negligible effect on consumer stocks, as savings generated from lower borrowing rates are likely to be saved rather than spent, the strategists said. Defensive stocks are likely to remain expensive in this scenario.

 Citi, meanwhile, is signalling the end of the traditionally high-yielding stocks’ stellar run. The renewed speculation that interest rates will rise in the US again as early as next month, will lead to rising bond yields and reduce the attractiveness of the so-called “bond proxy” stocks, usually real estate investment trusts, utilities, infrastructure and telcos.

Since the US Federal Reserve first raised interest rates in December, these defensive sectors haven’t continued the outperformance they enjoyed in recent years, Citi equity strategist Tony Brennan said in a note.

 

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Adrian Hoten- Singapore

Hi David, my settlement has just come through whilst at lunch. Thanks for all your help with this. I couldn’t have done it without you!

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Sydney apartment market faces price correction, valuer Opteon says

Opteon Property Group says parts of Sydney’s booming apartment market face a price correction next year as they tip into oversupply.

Constrained by lack of sites in the city centre in a way that Melbourne and Brisbane haven’t been, the apartment boom in the NSW capital has spread out across the metropolitan area.

But with an estimated 20,800 apartments this year and a further 26,000 expected to settle in Sydney next calendar year, the tide is turning for landlords and developers as price growth slows and buyers of off-plan apartments sell for less into an oversupplied secondary market, the valuation firm says.

“There are numerous new developments in some areas and there is a risk of an oversupply issue which looks to bite around 2017-2018,” Opteon said in analysis prepared for The Australian Financial Review.

The oversupply – and pain – will not be uniform. Sydney doesn’t face the widespread price apartments expected to result from the wave of looming settlements in Melbourne and Brisbane, as it still suffers a shortage of homes and unaffordable prices of detached homes mean many buyers have no choice but to go for an apartment.

But the analysis is the strongest sign to date that even Sydney is hitting the ceiling of housing construction this cycle.

NSW has approved more new apartments than Victoria every month on an annualised basis every month since June 2013. The latest Australian Bureau of Statistics figures show that in the year to March, NSW planning authorities gave the tick to 40,770 new apartments, townhouses and semi-detached homes, while Victorian planners approved 32,679.

Other observers think parts of Sydney’s apartment markets are in for a correction. Development in the Northern Districts is surging ahead of the planned North West Rail Link but it could prove too much, said Angie Zigomanis, forecaster BIS Shrapnel’s senior manager for residential property. Parramatta in the west could also find itself with too many apartments, he said.

“In general, it will only be localised pockets if there is oversupply,” Mr Zigomanis said.

Any correction will not be immediate. Buyers of recently completed off-the-plan apartments – those purchased around 2013/14 – are generally in the black because the subsequent surge in prices has already pushed market prices above what they paid, Opteon said.

But apartments sold since last year – “in large numbers to overseas investors at a premium” – are the ones at risk as they will not see the capital growth earlier purchasers have enjoyed, Opteon said.

“As we head into a more steady market, a concerning factor will be 2016 purchasers paying a premium for new product, and not seeing growth in the market towards completion of the complex two to three years down the line, with potential valuations lower than the purchase price,” it said.

 Sydney’s residential property market has defied expectations of a slowdown, with an auctions market that keeps on firing. But price growth is slowing on the supercharged figures of last year and property in the largest city will be part of a national fall in prices that will come in 2019 and 2020, consultancy Capital Economics said this week.

While Sydney’s eastern suburbs were at no risk of oversupply, but some southern suburbs were, Opteon said.

“Suburbs to watch are Mascot, Zetland, Waterloo and Alexandria which are considered high density suburbs, with high rates of new off-the-plan apartments and potential over supply,” it said.

Opteon also singled out the suburbs of Asquith and Mount Colah, a recently rezoned growth corridor on the Pacific Highway near Hornsby.

 “Currently there is an oversupply of off the plan development stock currently listed for sale with some of these developments being sold with incentives that are outside of the norm,” Opteon said.

“It appears that this market segment may be heading into a period of over supply by late 2016/early 2017 which is likely to have a negative impact on both value levels and rental returns.”

 

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Citibank update Foreign Lending policies

Citibank have released a policy update in regards to loans that are reliant on Income Earned in a Foreign Currency.

 

As you are aware there has been a big shake up in the industry with regards to foreign income applicants. We’ve seen the major banks in Australia recently tighten or withdrawn from lending to Overseas Borrowers. This tightening by our competitors has led to an increase in applications received for overseas borrower loans.

 

Accordingly given increasing difficulty in confirming income from certain countries and to maintain a balanced portfolio without further erosion to our service proposition, when a loan is defined as an Overseas Loan, for capacity purposes we will ONLY rely on currencies from the following list:-

 

• Canadian Dollar (CAD)
• Danish Kroner (DKK)
• European Union Euro (EUR)
• Hong Kong Dollar (HKD)
• Japanese Yen (JPY)
• New Zealand Dollar (NZD)
• Swedish Kroner (SEK)
• Singaporean Dollar (SGD)
• South Korean Won (KRW)
• Swiss Franc (CHF)
• UK Sterling (GBP)
• United States Dollar (USD)

 

In addition, no loan can be approved that relies solely on rental income.All documentation must be translated into English and all foreign income (both PAYG and self-employed) from the above list must be converted to AUD before inclusion in the capacity test calculator. The calculator will discount the income by 10%.Income earned in a foreign currency other than the currency of the applicants nationality (Australian citizens / Permanent Residency Status (PR) excepted) is NOT permitted for use in the capacity test.All other existing policy requirements surrounding this segment remain.This change is effective immediately for new business submitted after 5.00pm on 6th May 2016 and for pipeline business requiring re-assessment or re-approval.

 

 

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ANZ, Westpac hit by hundreds of Chinese home loan frauds

ANZ Banking Group and Westpac Banking Corp have discovered they have each approved “hundreds” of home loans backed by fraudulent Chinese income documents, which were allegedly manufactured with the help of dodgy mortgage brokers.

“Westpac staff undertake verification for foreign income including obtaining pay slips and bank statements in both the relevant foreign language as well as getting those documents translated,” Westpac spokesman David Lording said in response to inquiries from The Australian Financial Review. “We have identified an issue with some loans that we are currently investigating.”

ANZ spokesman Paul Edwards confirmed the bank had experienced problems “with the income documentation of a small percentage of borrowers who rely on foreign income”.

“Policy changes have been made to address this and we are also reviewing a number of brokers,” Mr Edwards said.

ACTION TAKEN

The Financial Review understands that mortgage brokers associated with the spike in fraudulent Chinese income documents have been suspended by the banks pending further investigation.

ANZ and Westpac have also informed regulators and the police.

Surprisingly, the repayment performance of the fraudulent borrowers is better than both banks’ average home loan, as is their equity or security coverage.

“Our delinquency rate on foreign income loans is lower than the portfolio average, and a large proportion of these loans are ahead on repayments”, Mr Lording said. “Overseas borrowers are also well-secured with the [starting] loan-to-value ratios (LVRs) on these loans 70 per cent.”.

A standard Australian borrower can get much higher LVRs up to 90 per cent or more.

ANZ’s Mr Edwards said loans backed by fraudulent income documents were “performing better than the portfolio average”.

The Reserve Bank of Australia says the 90-day default rates on Australian home loans are among the lowest in the developed world and a fraction of comparable arrears rates on residential mortgages in the US, Britain and Europe despite Australia’s higher mortgage rates.

NO CREDIT RISK ISSUE

The AFR​’s investigation suggests the total value of ANZ and Westpac loans afflicted by fraudulent income information is likely to be less than $1 billion, or 0.12 per cent of their combined $837 billion of residential mortgages. Fewer than 0.4 per cent of these loans are more than three months behind on repayments.

Other banks, however, are likely to have been caught in the Chinese income scam.

“All our analysis to date indicates the issue is relatively small and there is no material credit risk issue involved,” Mr Edwards said.

Mr Lording said Westpac had “no tolerance” for fraud. “When fraudulent activity is discovered we take action against those involved, including the broker, which normally results in termination,” he said.

Rumours of the spike in Chinese frauds have run rife across the banking and broking markets and may have contributed to recent decisions by several major banks to stop lending to foreigners.

Another drawback of foreign borrowers is that they typically only have one product with the bank and are not attractive for cross-selling purposes.

Asked whether the Chinese frauds had influenced Westpac’s decision to withdraw from foreign lending, Mr Lording said “while foreign income verification is more operationally difficult, the primary driver of our decision was the changes in capital and funding requirements”.

Under the final Basel 3 global credit rules, banks lending to borrowers reliant on foreign income will be slugged with larger capital charges, which will reduce returns on these products. ANZ’s response to these regulatory changes has been to adjust product pricing.

Last week, the RBA cut its cash rate to a record low of 1.75 per cent, which is likely to provide further momentum to Australia’s already frothy housing market and intensify the affordability debate in an election year.

House price index provider RP Data says that over the three months to May 8 Australian home values have accelerated again, with annualised capital gains of more than 10 per cent.

 

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