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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RBA Announcement – Cash Rate lowered by 0.25% to 1.75%

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.

The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.

Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.

Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.

Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

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