Australia Mortgage

China Cuts Interest Rates for Third Time in Six Months as Economy Sputters

2015-05-10T17:43:00.001-07:00

China Cuts Interest Rates for Third Time in Six Months as Economy Sputters

China cut interest rates for the third time in six months on Sunday in a bid to lower companies' borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century.

Analysts welcomed the widely-expected move, but predicted policymakers would relax reserve requirements and cut rates again in the coming months to counter the headwinds facing the world's second-largest economy.

The People's Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 per cent.

"China's economy is still facing relatively big downward pressure," the PBOC said.

"At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

Sunday's rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that China's economy is under persistent pressure from soft demand at home and abroad.

While the PBOC acknowledged the difficulties facing China's economy, it said in its statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms.

As part of these reforms, it lifted the ceiling for deposit rates on Sunday to 1.5 times the benchmark level, the biggest increase in the ceiling since it began to liberalise the interest rate system in 2012.

More Easing Ahead

Economists had said it was a matter of when, not if, China eased policy again after economic growth in the first quarter cooled to 7 per cent, a level not seen since the depths of the 2008/09 global financial crisis.

Indeed, some analysts have even said recently that the PBOC had fallen behind the curve by not responding aggressively enough to deteriorating conditions.

With China set to publish more key economic data on Wednesday, including industrial output and investment, the timing of the rate cut could add to worries that figures may disappoint across the board again, as they did in March.

For now, however, some were confident that policymakers can arrest the slide.

"Intensified policy loosening will help effectively halt the economic slowdown," said Xu Hongcai, a senior economist at China Centre for International Economic Exchanges, a well-connected think-tank in Beijing.

A cooling property market and slackening growth in manufacturing and investment have weighed on the Chinese economy. Annual growth is widely forecast to sag to 7 per cent this year, down from 7.4 per cent in 2014.

In an attempt to energise activity, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.

This is partly because despite the steady drum roll of policy easing, there are indications it has not benefited the real economy. Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds.

"The effectiveness of the rate cut won't be very big," said Li Qilin, an economist at Minsheng Securities. "The PBOC has already cut benchmark interest rate by a total of 65 basis points, but borrowing costs have only fallen marginally."

Struggling Banks

Banks are also struggling as the economy founders. Lending has slowed, bad loans are piling up, and profits margins are getting squeezed as China liberalises its interest rate market. Banks' earnings reports last month showed profit growth hit a six-year low in the first quarter.

Given these challenges, the PBOC said it does not expect banks to pay savers the maximum deposit rate allowed by authorities.

And with the prospect that borrowing costs may stay stubbornly elevated, government economists told Reuters earlier this month authorities may ramp up state spending to shore up growth, in the hope that fiscal policy would work where monetary policy hasn't.

But Li Huiyong, an economist at Shenwan Hongyuan Securities, cautioned against thinking that lower borrowing costs would not trickle down to businesses and consumers at some point.

"Don't underestimate the cumulative effect of the cuts in interest rates and RRR," Li said. "This won't be the last cut.

"The rate could be lowered to 2 per cent at least, and we expect the economy to gradually stabilise in the coming two quarters."

Mortgaging our children’s future: Aussie ticking time bomb sparks fears should new GFC hit

2015-03-16T15:44:00.001-07:00

AUSTRALIAN households are sitting on a ticking time bomb of debt, exposing the economy to risks in the event of another financial crisis, according to new analysis.

The Australian reports household debt in Australia is equal to 130 per cent of GDP, compared with an average across the advanced world of 78 per cent, according to Barclays chief economist Kieran Davies.

Household debt was at 116 per cent of GDP before the global financial crisis and held steady until 2013, when the property boom set it rising again.

Mr Davies said Australia’s debt levels were rising when those of other countries were falling, and the predicted rate cuts were likely to push borrowing even higher.

Reserve Bank governor Glenn Stevens warned of the dangers of taking on excessive debt last year, saying “we would surely be asking for trouble if we see a big step up from where we are”.

“The tricky thing for the Reserve Bank is that promoting leverage is the key channel for the transmission of lower interest rates through to the rest of the economy,” Mr Davies said.

The high popularity of real estate investment in Australia compared with other countries is being driven by the availability of negative gearing tax concessions and favourable capital gains tax treatment.

The level of household debt is higher now than at any other time in Australia’s history, with records going back to the 1850s. The level of bank lending as a share of GDP is now more than double the share of the previous peak, which was during the 1890s land boom.

Using Super to Buy First Home a 'Pressing National Issue' Says REIA

2015-03-08T05:21:00.001-07:00

Federal Treasurer Joe Hockey appears to have taken the real estate industry lobby group's advice in suggesting people should be able to use their superannuation to buy their first homes, as the peak superannuation body urged caution for such an approach.

The Real Estate Institute of Australia outlined the radical idea in its budget submission to Mr Hockey last month, with the treasurer saying Australians ought to start thinking seriously about the way in which their super savings can be used in the future because people were working and living for longer.

"We are prepared to look at a diverse range of proposals to help young Australians buy their first home," Mr Hockey said, suggesting that super could be used for a deposit on a first home or job retraining.

His comments were quickly criticised by Labor and some economists, but REIA chief executive Amanda Lynch said using super to help pay for a first home could make housing more affordable and build retirement savings.

"We believe that owning a home is the biggest generator of long-term financial security for Australians and the earlier you can access the housing market, the more secure your retirement will be because most Australians aspire to have paid of their home before they retire," Ms Lynch said.

Shadow Treasurer Chris Bowen rejected the suggestion, saying it would have the opposite effect.

"[The] plan would have the likely effect of not only undermining retirement incomes but also driving housing prices up further and making it harder for first-home buyers," he said.

Association of Superannuation Funds of Australia chief executive Pauline Vamos said the plan would benefit the rich far more than the poor.

"There are significant equity issues when it comes to allowing the release of concessionally taxed superannuation contributions for home equity," she said, referring to higher income earners paying 45 cents in the dollar in income tax but only 15 cents in the dollar on superannuation contributions.

They would be able use concessionally taxed super money to buy a house and then top up their super, again at a low tax rate.

"There significant equity issues when it comes to allowing the release of concessionally taxed superannuation contributions for home equity," she said.

But Ms Lynch stood by the proposal.

"The fact about buying a house is that you are actually saving all that equity and the compounding interest will be beneficial. To say that investing in superannuation, which is mainly skewed towards shares, is a safe proposition doesn't hold up to scrutiny.

"In the years since the GFC we have actually seen super being more of a financial risk than previously and a lot of people close to retirement have found their super balances have been dwindling."

Private Health Insurance Pain as Households Struggle to Cope With Rises

2015-03-08T04:54:00.001-07:00

Private health insurance pain as households struggle to cope with rises

Private health insurance premiums are set to rise an average 6.18 per cent on April 1.

HALF of Australia’s private health insurance customers are thinking about downgrading their cover in an effort to combat soaring premiums.

Ahead of an average health insurance rise of 6.18 per cent on April 1, new research by consumer network One Big Switch has found that two-thirds of households have had trouble paying their bill.

Its survey of 40,000 consumers also found that many people are making sacrifices to stay insured, including reducing their level of cover, increasing their excess and spending less elsewhere.

One Big Switch spokesman Joel Gibson said this year’s premium hike was the second consecutive annual bill rise of about $300.

“Health insurance is one of those bills that really gets under people’s skin,” he said.

“Sooner or later, something’s got to give, or thousands of consumers will dump their private cover and fall back on the public health system.”

Consumers who \dump their private cover will fall back on the public health system. Picture: Publishing Ingram.

Mr Gibson said some people were trading away certain treatments, such as heart or eye treatments.

MORE: The government’s health fund rebate slashed costing families $120 a yea

He cautioned about quitting private health cover outright. “There’s the danger that if you drop it altogether, because you can’t afford it, it becomes harder to get back in if you are over 30.”

The Federal Government’s Lifetime Health Cover rules penalise people with a loading of 2 per cent for every year after age 30 that they don’t have hospital cover, up to a maximum 70 per cent loading. There are also penalty taxes for middle and higher income earners who don’t take out hospital cover.

“Australians want the peace of mind that comes with private health insurance, but many are now being priced out of the market,” Mr Gibson said.

Medibank chief customer officer Laz Cotsios said customers should review their health insurance policies at least annually.

“A cover review allows people to consider their situation and check that their cover still suits them,” he said.

Medibank branch, Adelaide Street, Brisbane. Medibank was floated on the stock market today. Customers discuss their impressions of the float. Photo: Claudia BaxterALSO: Pay doctors more but only when they provide the right care say health funds

“Don’t forget that you can prepay your health insurance to lock in your current premium.”

More than 20,000 people have signed a One Big Switch petition calling for more affordable private health insurance, and the consumer network has joined forces with News Corp Australia in a campaign to use people power to unlock a group discount offer from a health fund.

RELATED: Mooted private health insurance ‘excess’ rise could double the cost of an operation

Last week was the first week of the four-week Big Health Insurance Switch campaign and more than 45,000 people signed up. Joining is free and there is no obligation to accept any offer that is presented.

The Big Health Insurance Switch

For more details visit moneysaverhq.com.au. One Big Switch and News Corp Australia earn a commission on any offers that are accepted.

Perth House Prices Fell 2.3 percent in February

2015-03-03T21:12:00.001-08:00

House values across Perth fell by more than 2 per cent through February despite the cut in mortgage interest rates.

Figures:
from RP Data-CoreLogic showed values in Perth dropped by 2.3 per cent
to be 2.9 per cent down since the start of the year.

The fall was not confined to houses. The value of units dropped by 0.4 per
cent in the month to be off by 0.9 per cent this year.

Over the past 12 months house value sin Perth are up by just 0.7 per cent,
well short of inflation, while unit values have fallen in nominal value
by 1.9 per cent.

Only Hobart has a softer house market than Perth with values on the Apple Isle up by 0.6 per cent.

The fall came despite the Reserve Bank slicing official interest rates to their lowest level on record. Banks cut their mortgage rates in line with the Reserve.

Nationally, prices edged up by a modest 0.3 per cent but almost all of the growth was in Sydney
where house values lifted by 1.6 per cent.

Over the past year, Sydney values have climbed by 14.7 per cent.

RP’s head of research Tim Lawless said there had been step down in growth over the past three months.

He said outside of Sydney, lower interest rates were failing to drive up values.

“We might not see the lower interest rate environment stimulate the housing market as much as it has in the past,” he said.

“Weaker jobs growth, higher unemployment, declining affordability, low rental
yields and political uncertainty are all factors that could dent consumer confidence and provide some counter balance to the rate cuts and quell any additional market exuberance.”

The Reserve Bank board meets tomorrow with markets putting the chance of a rate cut at 50-50

Australian Dollar Tumbles on RBA Cash Rate Cut

2015-02-03T14:19:00.001-08:00

The Australian dollar tumbled by more than one and a half cents on the Reserve Bank of Australia's decision to cut the cash rate to a historic new low.

The local currency hit a fresh five-and-a-half year low to US76.57¢ on Tuesday afternoon, down from US78.16¢ just before the release. The reaction followed the central bank's decision to cut the cash rate by 25 basis points to 2.25 per cent after 18 months of holding the rate steady.

Despite the sharp fall in the Aussie dollar – nearly 20 per cent in the past six months – the Reserve Bank said the exchange rate remained high.

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies," the Reserve Bank said in its statement on monetary policy.

"It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Market forecasts the exchange rate to continue to fall. On Commonwealth Bank of Australia figures, the local currency is expected to fall towards 73¢ by June this year, but the bank's senior currency strategist Elias Haddad said there was a risk the Australian dollar will fall even further and the bank will be revising its forecast.

"We expect a further downside movement here, not just against the US dollar but also on the crosses, due to narrowing interest rate, falling commodity prices and still unimpressive Chinese economic data," Mr Haddad said.

National Australia Bank will also be revising its forecast in light of Tuesday's tumble. Back in November last year the bank forecast the Australian dollar to hit US78¢ by the end of 2015. NAB global co-head of FX strategy Ray Attrill said the bank will be reviewing its forecast after the central bank releases its statement on monetary policy on Friday.

"The market already priced in the expectations of a rate cut, but the currency still lost. It shows the market is still prepared to sell," Mr Attrill said.

In an exclusive interview with The Australian Financial Review in December last year, Reserve Bank governor Glenn Stevens said an appropriate level for the Australian dollar would be US75¢.

Mr Attrill said the currency could be heading towards the US70¢ mark, given the fall in the commodity prices since December.

"You can argue, if US75¢ was about the right level in mid-December, and taking into account what's happened with commodity prices generally, maybe US70¢ is more appropriate," he said.

A batch of data fuelled RBA jitters earlier on Tuesday. The Australian dollar jumped by more than third of a cent to US78.30¢ after slightly better-than-expected economic data was released: building approvals slipped 3.3 per cent in December (better than the predictions of a 5 per cent slide) and trade deficit narrowed to $436 million in December, beating expectation of more than $850 million.

#AustralianDollar #RBA #interestrates

House Price Boom Must End, Says David Gonski

2014-09-04T18:41:00.000-07:00

ANZ chairman David Gonski has warned Australia's booming housing prices cannot go on forever and the market will eventually experience a correction.

The former Future Fund chairman said ANZ and all the big banks were "very aware of history" when it came to financial lending in the residential mortgage market.

"There will come a time when there will be a correction," he told the Australian British Chamber of Commerce.

"The fact is, anyone who believes prices always go up is, I think, a fool."

Mr Gonski's comments come as the housing market heats up as spring approaches. Capital city markets had their strongest winter since before the lead up to the financial crisis, according to figures released on Monday by RP Data.

Sydney and Melbourne house prices lifted 5 per cent and 6.4 per cent respectively over the three months to the end of August. The surge represents year-on-year growth of more than 16 per cent in Sydney and almost 12 per cent in Melbourne.

Brisbane, which was one of the weaker-performing cities, recorded a 1.3 per cent property value increase in the three months to the end of August.

The Reserve Bank warned in its submission to the Financial System Inquiry that moves to boost competition in the home loan sector could increase risk in the financial system.

Regional banks, credit unions and building societies have urged the federal government to change regulations that give the big banks a significant cost advantage when making home loans.

Mr Gonski also backed ANZ's Asian strategy, questioning why some in the market consider ANZ to be "riskier" than its peers because it is in Asia.

"I believe it's quite odd, I have to say, that we are regarded as a riskier investment because we have investments outside Australia.

"I could very well argue that a good investor has some money in Australia and some money overseas. That's exactly what the ANZ has done."

Australia 'at the Front' of Growing Subprime Mortgage Market

2014-08-30T21:13:00.001-07:00

Australia 'at the Front' of Growing Subprime Mortgage Market

They triggered an economic meltdown in the United States and sparked the global financial crisis, but subprime mortgages are staging a revival in Australia.

Ratings agency Moody's says Australian lenders have doled out $3 billion worth of the non-conforming home loans over the last 18 months.

Prime mortgages are those that typically go to people with good credit scores, secure jobs and existing, well-serviced loans.

Moody's analyst Robert Baldi says non-conforming, or subprime, borrowers tend to have patchier personal financial histories.

"We're looking at things like prior bankruptcies or prior defaults in their credit history past," he explained.

"If the borrower is a non-resident, for example, or it's a jumbo loan, these would all fall outside of the lenders' mortgage insurance criteria and would classify the loan as non-conforming."

Essentially, subprime loans are those going to borrowers with a much higher risk of default that a typical loan.
Australia 'out at the front' of subprime market

While subprime remains something of dirty word in the economies hardest hit by the GFC, Australian lenders are increasingly willing to step up and fund subprime loans by selling what are known as residential mortgage backed securities (RMBS).

"Australia is out there at the front of the market, I would say, so we are the ones that have continued with issuance in this space," Mr Baldi said.

"Since the beginning of 2013, we've seen 10 new transactions in the RMBS market from non-conforming issuers and that's totalled about $3 billion, so that's quite a pick up in volume considering the market did shut down post the crisis in 2008."

While $3 billion sounds like a large amount of money, Mr Baldi says it is a relatively small share of the home loan market, and of RMBS issuance.

"In the year to date we saw roughly about $15 billion of RMBS transactions. Of that, about $1 billion was non-conforming, so we'd say about 7 per cent of issuance this year has been from the non-conforming market," he added.

Moody's says most of these loans are being written by non-bank lenders.

However, Mr Baldi is confident that there is enough regulation in place to avoid a subprime crash similar to that in the US in 2008.

"One of those is the National Consumer Credit Protection Act, and this basically requires lenders to take reasonable steps to verify a borrower's financial position and their ability to repay the loan," he said.

"Essentially this gets around the fact that in the US you saw those loans being written to borrowers pre-2008 with little to no income verification. In Australia that just can't happen."

The United States is still managing the fallout from its subprime crisis.

Last week, finance powerhouse Bank of America Merrill Lynch agreed to an almost $US17 billion settlement for its role in the crisis.
Australia's biggest danger in prime mortgages

Despite that history, banking analyst Martin North sees Australia's non-conforming market as much safer.

"Most of the investors now, the people who are buying these mortgage-backed securities, are now Australian investors rather than overseas investors," he said.

"So there is a bit of a feedback loop going on, and that does mean that some of the other players who might be buying those securitised loans now are essentially home-based rather than offshore-based."

Mr North says the subprime segment of Australia's market is so small that it is unlikely to destabilise the financial system, even if a lot of the loans go bad.

However, he says Australia's banks, households and the economy in general is too heavily reliant on real estate.

"This is a very small proportion of a much bigger question about leverage into property," he warned.

"We have a massively leveraged financial services system into property more broadly.

"If we have the sorts of defaults we're talking about in the non-conforming sector, then you would also be having, I think, similar defaults more broadly across the market, and it's those broader defaults across the market that would be of much more concern rather than the non-conforming element, which I think is quite small and quite isolated." -

See more at: http://propertysydney.blogspot.com.au/2014/08/australia-at-front-of-growing-subprime.html#sthash.70AOW7HQ.dpuf

Don't Get Burnt by The Property Market

2014-08-30T20:42:00.001-07:00

Don't get burnt by the property market

How seriously should property investors take recent warnings that Australian property prices are 20 per cent to 30 per cent higher than they should be and that there is an impending apartment glut in 2017?

Whatever the fundamental basis for these and similar warnings, existing and new property investors need to be aware of the potential downside.

The basic issue is to understand the risks involved with investments already owned or being purchased. While less popular for purchases of listed assets including shares and property trusts as well as managed funds, large levels of borrowing are widely used to help acquire direct property holdings.

This high level of gearing helps to drive up property prices in good times such as the present and down when markets turn down, for example due to increased levels of vacancies and/or falling rents. Currently, strong foreign buying interest, low interest rates and a shortage of available stock is forcing and encouraging new investors to bid up prices.

While it may be some time off, a similar downward ratchet in prices will start when interest rates rise again and when new housing developments result in an oversupply in the major locations. Compared with share market falls which can be brutal and swift, downward property price movements are generally protracted as sellers holding out for higher prices ultimately are forced to lower their expectations.

A special feature of the apartment market can, however, result in distressed forced sales. This is when a large number of off-the-plan sales negotiated before or during construction fall through. A recent example of this occurring is the setback in the Canberra apartment market due to over-supply and reduced public sector employment opportunities.

In this situation, a significant percentage of off-the-plan buyers were either unable or unwilling to complete their purchases. The resulting forced sales depressed asset valuations and made it more difficult for heavily geared purchasers to obtain credit to meet their commitments.

The key message for individual investors is to be aware of these and other risks before entering into off-the-plan contracts. While one benefit of off-the-plan purchases is what can often be a lengthy time lag before money is required to complete the purchase, this can be a negative if personal circumstances change or property valuations fall before the settlement date..

The chances of both of these changes increase with the amount of time before completion. The risks are also greater in situations such as the present time when contracts are entered into in a buoyant market. So even if the warnings of problems ahead don't prove accurate, they are a timely reminder to avoid becoming over-committed to a future large heavily geared property purchase.

How Almost 300,000 SMSFs Avoid Paying Income Tax

2014-08-25T23:36:00.001-07:00

Only a fraction of Australia's half-a-million self-managed superannuation funds pay any income tax, experts say, because of generous super concessions and franking credits that are undermining the federal budget.

Tax Office statistics show almost 300,000 self-managed superannuation funds eliminated or reduced their tax bills through exemptions on super and $2.5 billion in franking credits in 2011-12.

These are the most recent records available, although experts say the surge in dividend payments since then has further reduced the small amounts of tax paid by these funds, which are often the primary income of wealthy retirees.

At the time, 424,360 funds generated gross taxable income of $32.9 billion. About $15 billion of that was entirely exempt from income tax because the funds were in the pension phase, which doesn't incur income tax.

Self-managed funds contribute little to the tax system – because about half of the funds' assets are already in the pension phase, Tria Investment Partners principal Andrew Baker said. Also, most self-managed funds receive franked dividends, which cuts the tax bill of many other funds to zero.

"It's a problem isn't it?" Mr Baker said. "It's unlikely SMSFs are ever going to pay a substantial amount of tax as a segment."

The loss of revenue will rise because of an ageing population shifting assets into pension phase and the greater payment of dividends, he said.

Pressure is growing to focus on superannuation tax breaks in the Coalition's planned review of the taxation system. The government is desperate to find ways to reduce the budget deficit.

There have been frequent calls for the government to stop the concessions. The head of the Financial System Inquiry, David Murray, recently suggested Australia's dividend imputation system, which SMSFs are also capitalising on, needed to be looked at.

The roughly 1 million Australians with investments in self-managed super funds argue that having spent their careers paying income tax and following the rules they shouldn't be penalised for saving for retirement.

"Super funds, including SMSFs, are taxpayers, and franking credits should be available to all taxpayers," SMSF Professionals' Association of Australia's technical and professional standards director Graeme Colley said.

Experts say it would be better to tax the earnings of superannuation funds in pension phase at 15 per cent, rather than try to get rid of franking credits, which could see share prices plummet.

A fundamental change

Australia and New Zealand are now the only two developed countries that have full imputation of dividends.

Mr Baker said scrapping Australia's dividend imputation system, would involve "a fundamental change to the taxation system" that would be hard to implement. He said a better way to address the problem was a 15 per cent earnings tax for those in the pension stage. Another option was to copy the United States' minimum taxation rate, "that in short says everybody pays an amount of tax".

Ending franking credits could trigger a political backlash from investors and "would be reintroducing double taxation, so there are enormous problems with it", Mr Baker said.

"The UK did a similar thing 15 years ago, denying pension funds franking credits, and they got away with it . . . despite the protest." He said a tax rate on the pension phase would also stop gearing by SMSFs.

Tax Office data shows SMSFs have an interest expense bill of about $375 million a year, but Mr Baker said that's just the tip of the iceberg.

The data comes from SMSF tax returns, but it is common for SMSFs to achieve gearing outcomes by investing in private property trusts. He estimated the overall interest expense for the sector would be about $500 million annually.

Grattan Institute chief executive John Daley said any change to dividend imputation would have to be part of a package that also reduced the company tax rate and personal tax rates.

He said the difficulty with scrapping imputation was that it would "create incentives for companies to hoard capital rather than returning it to shareholders, which may reduce the efficiency of investment decisions".

Instead, the government should wind back superannuation tax breaks for the old and wealthy. "The easiest way to do this would be to tax the income and capital earnings of super funds in pension phase at 15 per cent," Mr Daley said. "These funds would then pay tax on earnings at the same rate as the super funds of those aged under 60."

He said there was no reason to grandfather this change.

"Anyone who is in pension phase can withdraw the entirety of their super fund tomorrow, and if they think they can find an investment on which they will pay less than 15 per cent tax, good luck to them," Mr Daley said.

"I'm guessing that there will be very few withdrawals."

'It ain't going to happen'

At the end of 2012, the average SMSF had $920,000 (typically funds are made up of more than one person: couples).

According to a 2012 ASX study, about 52 per cent of SMSFs directly hold Australian shares. Tax Office data shows of the $550 billion invested in SMSFs, $180 billion is directly invested in Australian-listed shares, which is already higher than the average of APRA-regulated funds.

Leading economist Saul Eslake said he was "undecided" about whether dividend imputation should be scrapped, although he had previously mentioned it is a costly tax break that the wealthy use to lower their marginal tax rates.

He said that like negative gearing, there are now so many who benefit from franking credits – SMSFs, investors and members of larger public or industry super funds – that "no matter what the intellectual merits of getting rid of it, it ain't going to happen for political reasons".

"Almost certainly, the benefits of franking credits are capitalised into the share prices of companies that have high franked dividend yields, so it seems almost inevitable that abolishing dividend imputation would cause share prices to fall, unless there were an equivalent reduction in the company tax rate," Mr Eslake said.

David Murray said in his review of the financial sector the imputation system – first introduced in 1987 and estimated to cost about $20 billion a year – had created a bias where individuals and super funds preferred shares and this had hindered the growth of the domestic corporate bond market.

PwC's submission to the Murray inquiry said "careful consideration should be given to whether there would be benefits to be obtained from modifications to the imputation system"

Property-Related Firms Rake in Revenue From Real Estate Boom Australia

2014-08-25T18:39:00.001-07:00

Property exposed companies have reported "tremendously successful" and "best ever" results thanks to the booming housing market.

Developer Mirvac saw its full year profit spike 220 per cent to $447 million dollars.

Shareholders will receive a final dividend of 4.6 cents a share, taking the full year payout to 9 cents unfranked.

Strong residential sales lifted the result, with a total $1.2 billion of exchanged pre-sales contracts in hand and a slightly better than forecast 2,482 properties settled.

Chief executive Susan Lloyd-Hurwitz says the year has been "tremendously successful" and has set the company up for the future.

That future is very focused on building apartments to feed what it believes will continue to be high demand, particularly in Sydney and Melbourne.

Chief investment officer Brett Draffin says the strong sales and price momentum seen over the past financial year is set to continue, albeit at a "slightly more moderate level."

He is not concerned about the flood of units that is expected to come onto the market in the near term.

"Fundamentally increased stock levels are insufficient to overcome the national undersupply, there is a high level of activity from offshore buyers in select locations and product types," he told investors.

"We expect demand volumes to continue to grow driven by tight rental vacancy population growth and a strengthening of the economy."

Mirvac has spent $248 million on new sites, two-thirds of these acquisitions were in NSW, less than a fifth were in Victoria, and the remainder in Queensland and Western Australia.

Half of the lots to be released this year are in Sydney, and almost all of them are units.

Mirvac believes the major acquisitions it has made will see residential development drive earnings from two years time onwards.
Mortgage broker boosts earnings

Mortgage broker Mortgage Choice has also benefitted from the fever that has swept the residential property market over the past year-and-a-half, boasting a best ever full-year result.

Full-year net profit rose 6 per cent to $19.85 million, and cash profit jumped 19 per cent to $18.7 million.

The final dividend was boosted to 8 cents a share, fully-franked.

The company says it "managed to capitalise on the industry tailwinds and significantly grow its core business."

The business wrote $12.2 billion in loan approvals, which is almost 20 per cent higher on the prior year, and the loan book rose to $47.4 billion.

Chief executive Michael Russell says it is the best result so far for the company.

"We have embraced the opportunities that the strong market has presented us with and managed to deliver some of our best financial results to date," he said.

The company says it is well on its way to achieving its goal of becoming a recognised diversified financial services provider.

Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

2014-08-25T05:57:00.000-07:00

Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

A leading economic forecaster is warning that oversupply will cut Sydney apartment prices by up to 10 per cent.

The report by BIS Shrapnel estimates that 5,800 apartments are being built in inner-Sydney right now, with almost as many again planned to be completed over the next few years.

The report says the peak annual output of 4,500 units in 2016-17 is comparable to the last boom in 1999-2000, but the average of 3,800 new inner-city apartments per year over three years will be a record.

BIS Shrapnel's senior manager of residential property Angie Zigomanis, who wrote the report, says developers have been playing catch-up after a decade of undersupply in Sydney, but they look like soon getting ahead of themselves.

"The population growth in Sydney still stays pretty strong, rental demand will still be fairly strong, but it's just that the level of apartment construction now is moving up to a level that's probably approaching a level that's too high and that's unsustainable in the long-term," he told ABC News Online.

Mr Zigomanis does not expect this to occur in the short-term, but warns that the wave of new developments over the next few years is likely to result in supply exceeding demand.

"Once the market starts getting into oversupply then rents either flatten out or start falling," he said.

"This has the potential to also coincide with the Reserve Bank looking to start tightening interest rate policy as well and that combination will see the investment equation change and investors start becoming less confident about the market and prepared to pay lower prices for dwellings.

"So any new apartments that come back onto the market are likely to experience some sort of loss two or three years out from now."

Mr Zigomanis says the losses are unlikely to be large, but may prove a serious setback for those buying off-the-plan now expecting capital gains.

"Depends on location, etc, but I wouldn't be surprised if from their current purchase price they don't experience losses of perhaps 5 per cent, and perhaps selected developments up to 10 per cent."

In results released last week, property developer Mirvac said it planned to focus heavily on increasing apartment developments in the Sydney market, expecting that segment to remain strong for the next five years.

Mr Zigomanis says a lack of pre-sales a couple of years hence may force a rethink of such optimistic strategies.

"They require a certain level of pre-sales before they go ahead with construction," he said.

"Over the next couple of years we expect pre-sales will be pretty strong so it should be able to sustain the number Mirvac are talking about, but if they were assuming that demand would stay at current levels over the next say five years we suspect that won't be the case.

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Chinese Investor Frenzy Adds Fuel to Inner-City Sydney Apartment Boom

2014-08-25T05:51:00.001-07:00

THOUSANDS of Chinese investors piled into a property expo in Sydney’s Town Hall on the weekend as analysts tip overseas buyers will keep the city’s inner city apartment market booming for the next two years.

Close to 50 companies jockeyed for the attention of the cashed up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia

About 50 companies jockeyed for the attention of the cashed-up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia.

The property frenzy came as Sydney and Melbourne kicked off the spring auction season with strong results, posting clearance rates of 83.4 per cent and 75.3 per cent respectively on total sales of $545.7 million, according to preliminary figures released by Australian Property Monitors.

“The (auction) results were extraordinarily strong,” said APM senior economist Andrew Wilson. “The Sydney market just keeps rising. Certainly there is no sign of a waning of activity.”

He said a lot of the buyer action was driven by investors rather than owner-occupiers.

At the Sydney property expo Maggie Wang bought a house in Bellevue Hill, in Sydney’s east, for about $6m.

Ms Wang, who migrated three years ago, ran an IT and property development company in China and had recently started a wedding planner business in Australia. She said Chinese interest in Australian property was about more than just making money.

“People like the lifestyle, the country and the environment, it’s not just about investment,” Ms Wang said.

Another buyer, 26-year-old Crystal, bought a home in one of Sydney’s wealthiest suburbs, Vaucluse, for more than $5m, with plans to buy more Australian investment properties.

The expo also featured agencies, such as ABC World, which give Chinese investors advice on migrating to Australia through avenues such as the Significant Investor Visa. The visa, implemented by the former federal Labor government, allows foreigners who invest more than $5m in Australia the potential for permanent residency.

Black Diamondz director Monika Tu, who represents wealthy Chinese looking to buy Australian homes, said the visa’s introduction had led to a surge in interest for local trophy homes worth more than $5m.

Ms Tu said inquires to her agency from Chinese property hunters had increased by about 50 per cent this year.

Also at the expo, one of China’s largest developers, Greenland Holding Group, held expressions of interest for its second local project, the $200m Lucent apartment tower in North Sydney, while Singaporean-backed Frasers Property Australia marketed apartments at its $2 billion Central Park project at Sydney’s inner-city Chippendale.

The high investor demand for off-the-plan apartments is expected to keep Sydney’s inner-city market in boom mode for the next two years, according to forecaster BIS Shrapnel.

BIS Shrapnel said about 5800 apartments were under construction in Sydney while about 11,500 new apartments would be completed over the next three years — the biggest number in the city’s history. CBRE managing director of residential projects David Milton said the uplift in interest from Chinese investors allowed local apartment developments to stack up financially.

Australian Capital Cities: Where's Hot, Where's Not

2012-09-03T17:08:00.000-07:00

DARWIN was Australia's best-performing capital city for property values during the past quarter - up 5.2 per cent - and showing year-on-year growth of 4.2 per cent, according to the latest figures from RP Data.

The RP Data-Rismark August Hedonic index shows Adelaide is the weakest performing capital city, with the change in dwelling values sliding 2.2 per cent during the past three months.

The monthly figures were more optimistic though for Adelaide, showing 1.4 per cent growth for August.

Sydney and Melbourne both recorded only 0.1 per cent growth for the month, but are performing better for the quarter, at 2.4 per cent and 2.5 per cent respectively.

RP Data research director Tim Lawless, said the figures showed a flat winter season that could be the foundation of a strengthening Spring.

Combined with the lowest transaction levels since the late 1990s, prices could also soon be expected to drift upwards after years in the doldrums.

"Spring is going to be better than last year,” Mr Lawless said.

"This is the first time that we have seen total listings across the capital cities the same as they were last year.”

Mr Lawless said lower listing levels were good news for vendors because it meant there was not as much choice in the market which could improve prices.

"In November last year, the listings were 30 per cent higher than they are now,” Mr Lawless said.
"They are currently only 0.5 per cent higher than last year, which means that we have a good benchmark level."

From a supply perspective, it’s a sign that there aren’t as many homes on the market at the moment and that means homes are selling a bit faster and vendors discounting a little less but transaction numbers stabilising.”

Mr Lawless said transaction volumes were at their lowest since 1998 - and were currently lower than during the Global Financial Crisis.

"At the moment based on June data, transaction volumes are 7 per cent lower than the same time last year,” Mr Lawless said.

"We’re averaging 30,000 sales each month and that’s fairly steady across 2012.”

But the lack of stock was being treated calmly by potential buyers who are showing patience about finding exactly the right home.

"A lot more people are attending local houses and showing interest in the market place but there is still not a level of urgency that will push buyers into making a purchase decision rapidly,” Mr Lawless said.

“Purchase decisions won’t be rushed, buyers are playing vendors off against each other and are negotiating pretty hard.”

Figures from the data showed:

- Hobart prices grew 3.9 per cent for the year to date
- Sydney prices grew 1.9 per cent for the year to date
- Darwin prices grew 8.4 per cent for the year to date
- Brisbane prices grew 0.6 per cent for the quarter
- Perth prices lifted just 0.2 per cent for the quarter

House Prices Flat in August

2012-09-02T21:56:00.000-07:00

AUSTRALIAN house prices were flat in August, although Adelaide and Canberra experienced some growth.

House prices in Perth and Hobart fell more than one per cent in the month and there was little price movement in Sydney, Melbourne and Brisbane, the RP Data-Rismark August Index showed.
Adelaide and Canberra prices increased more than one per cent, while Darwin home values fell half a per cent.

The index posted a 1.6 per cent increase in Australian home values over the past three months but a fall of 2.4 per cent over the year to August.
During the quarter to August, Darwin was the best performing capital city, registering 5.2 per cent growth.

This was followed by Melbourne at 2.5 per cent, and Sydney at 2.4 per cent.
Perth and Brisbane recorded marginal growth of 0.2 per cent and 0.6 per cent respectively over the three-month period.

RP Data research director Tim Lawless said Sydney dwelling values increased in five of the past eight months, helping to provide a cumulative capital gain of 1.9 per cent over the year to date.
"Sydney is proving to be one of the most consistent performing capitals this year," he said.

A rebound in Melbourne was also encouraging, given more worrying signals earlier in the year.
"Improved affordability since June has helped dwelling values rise across every capital city over the three months ending August 2012, apart from Adelaide," Mr Lawless said.

"The big question is, can this growth be sustained?"

Mr Lawless said the spring selling season would be a good litmus test.

The highest rental yields for houses in the quarter were in Darwin at 5.8 per cent and the lowest yield were in Melbourne at 3.6 per cent.

Aussie Banks Worth More Than Europe's Combined

2012-08-19T00:03:00.001-07:00

FOR the first time in history the value of Australian banks are now worth more than the Eurozone.

The Commonwealth Bank made a net profit of almost $7.1 billion, the biggest ever reported by an Australian bank. That boils down to a daily profit of almost $19.5 million or more than $13,000 a minute.

ANZ posted a $4.4 billion profit for the nine months to June, an increase of 10 per cent.

CBA chief executive Ian Narev told the Adelaide Advertiser that he is “proud and not embarrassed” by the massive profit surge. He said the results boil down to strong Australian economy and the confidence of their shareholders.

“The people who own this group. . . 60 per cent of them are Australian households directly, that's 800,000 Australian families, “Another 20 per cent of our shareholders are Australians who own them directly through their pension funds.

“So the shareholders who we are doing well for are millions and millions of Australian households,” said Mr Narev.

ANZ's Australian, New Zealand and Asian operations, chief executive Mike Smith told news.com.au the group attributes their success to effective management of ongoing funding and competitive pressures. He also said ANZ had picked up market share in deposits, mortgages and business lending

Other financial analysts have said the massive profits can be explained by the fact that unlike European and American banks, Australia have not loaded up on subprime debt, bad real estate loans or “piles of dodgy foreign debt”.

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Home Owners Forced to Take Super - Australia Mortgage

2012-08-18T19:32:00.000-07:00

HOME owners have raided their superannuation funds of a record $100 million in last-ditch bids to avoid foreclosure, new government figures have shown.

The surge in mortgage-holders seeking emergency access to their savings has alarmed housing and social welfare groups, who warn many families are still struggling to meet loan repayments despite steep cuts in the interest rate

With distressed owners receiving an average of $15,250 each, there are also concerns some super accounts could be drained of more than a third of their value. The number of households in serious financial trouble has worsened despite mortgage lending rates falling about 1 per cent in the past six months and nearly 3 per cent since their peak in mid-2008.

Figures obtained by The Sun-Herald showed 6500 home owners were given emergency access to their super last financial year to prevent an imminent foreclosure.

A Commonwealth Department of Human Services report found $99.38 million was released, up 25 per cent on 2010-11 and well above the disbursements in the aftermath of the global financial crisis.
It also marks the third year in a row that the number of people applying for, and being granted access to, their nest-egg has increased.

A campaign manager for Australians for Affordable Housing, Sarah Toohey, said years of house price growth had seen debt balloon and forced households to devote an unsustainable amount of income to meeting mortgage repayments.

''It's alarming and it shows that housing affordability is about more than just interest rates,'' she said.
''The sheer size of what people have to borrow to get into the housing market now really puts household finances under strain.'

Sydney's Housing Market to Continue to Grow

2012-06-10T05:32:00.001-07:00

Sydney is Australia's most populous city and its housing sector offers investors unique opportunities with the security that comes with investing in a large and rapidly expanding market.

Property prices in Sydney have increased 25 per cent in the last four years, during which many other housing markets around the world have stagnated or even gone backwards.

The reason that Sydney's housing prices have continued to rise is simple - more people want to live there. Famous for its landmark Harbour Bridge and Opera House, Sydney is the business and financial capital of Australia, with an ideal climate and a relaxed yet cosmopolitan lifestyle.

Sydney has nearly five million residents and its annual population growth rate of 1.6 per cent is higher than the Australian average. It is also higher than that of any major western city outside Australia, yet less than half of this increase comes from births.

Most new Sydneysiders are overseas arrivals who come to Australia to start a new or better life, seeking employment or education opportunities for themselves or their children. They have created a steady demand for around 30,000 more dwellings each year, pushing up prices and making Sydney the most expensive city in Australia to buy a house.

The median price of a Sydney house is now around A$620,000 (S$786,740) and it is rising. Landed properties can be purchased on the outskirts of Sydney for around half this amount, but they are located far from the city centre. Sydney's idyllic harbour side location brings problems, as much of the land is locked away in parks or reserves and there is less available for housing. The urban footprint has spread as far south, north and west as there is land available.

It is almost impossible for overseas arrivals to buy a home until they settle and establish themselves, which can take many years. This has led to a rise in Sydney's rents, which are higher than any other major city in Australia.

High rents and prices have changed Sydney's landscape. They have led to the abandonment of the dream of a landed home for many young Sydneysiders and led to a boom in apartment living. Over half of Sydney's dwellings are apartments or "home units" as the locals call them.

The new medium and high-rise apartment blocks contain gymnasiums, swimming pools and garden barbecue areas. The units are fitted out to attract renters, while their design lowers maintenance costs for investors. Many of the suburbs where this transformation is occurring - such as Pyrmont, Ultimo, Camperdown, Double Bay and Broadway - are located close to the central business district and in the urban centre itself.

What makes these dwellings ideal for investors is that prices for home units are still less than 70 per cent of those of similar sized houses.

The Sydney inner urban market is unique because there are fewer development projects in the pipeline than there are in other cities such as Melbourne even as the rental demand is far higher. Rents in these areas are escalating as a result and housing investors from Singapore can buy off-the-plan units with confidence, knowing that both the rental yield and the value of their investment are likely to rise in the coming years.

Property Crash Just a Myth

2012-02-06T02:20:00.001-08:00

ONCE again, the apocalypse has been averted and the four horsemen have ridden off to create havoc elsewhere. Rather than the much-heralded assault on the Australian residential housing market, as has been predicted for the past five years by an ever-increasing host of international and domestic doomsayers, we are instead witnessing an orderly retreat.

There's little doubt that Australian property is likely to be subdued for at least the next few years and that values here are likely to decline. As in previous times, the property market appears to be settling in for a prolonged hibernation after a debt-fuelled run-up. But those gleefully predicting a US-style crash in the Australian property market are so far wide of the mark it beggars belief that anyone bothers to listen.

About the only place there has been a US-style property market crash in the past few years is in the US, a catastrophe sparked by reckless lending and a total failure of regulatory oversight that ricocheted around the globe in 2007, sparking round one of the global financial crisis.

Those American-style excesses (loans to borrowers with no ability to repay) were almost universally repelled in this market. As a result, we've largely avoided the after-effects. That hasn't stopped the hyperbole by an ever increasing mob of normally reputable commentators. But the facts are far more sobering.

The official figures released this week by the Australian Bureau of Statistics clearly show a downward trend in the domestic housing market. Overall, we experienced a 4.8 per cent national decline in the 12 months to the end of December. But the manner in which the declines were carved out provides the most interest. Australia may be a nation in the throes of a once-in-a-generation economic transformation, with resources squeezing out traditional industries, but there has been little evidence of that in demand for housing.

Among the biggest surprises was that Brisbane, one of the beneficiaries of the resources boom, led the housing market price declines with a 6.7 per cent drop in the year to the end of December. Adelaide and Melbourne were next. But the biggest surprise was the pullback in Perth residential real estate, shedding a whisker under 5 per cent. Unlikely as it may seem, Sydney was the best performer of all with a decline of just 2.7 per cent over the year.

Australian residential real estate is expensive on just about any measure. And it is clear it has reached a tipping point, for it has outgrown the capacity of Australians to service the debt required to buy a property. Not only that, the stronger dollar has made our property more expensive for foreign investors. But to employ that argument as the exclusive rationale for a domestic property market collapse is naive and ignores basic economic fundamentals of market operations - supply and demand.

Given the tighter lending criteria imposed upon our banks during the boom years up until 2008, the only way that we will experience an American-style property crash here is if there is a serious lift in unemployment, which would spark loan defaults and a flood of distressed property onto the market.

That's not impossible. But it is highly unlikely given our current historically low unemployment level and our place in the global economy as a resources supplier plugged into the only growth region in the world right now.

For a US-style property collapse to occur here, we would need to see sovereign debt defaults across Europe, the disintegration of the European Union and an international banking crisis that would cripple even China. And if that happens, we'll have bigger concerns than the price of our homes.

As with any market, there is a delicate balance between supply, demand and price. For those pining for ''the good old days'' when we had ''affordable housing'', it is time for a reality check.

Housing was never affordable. All that's changed in recent decades has been a shifting of the equation surrounding supply, demand and price. In the good old days, the only reason housing was far cheaper - on an average earnings basis - was credit was restricted. Up until financial deregulation in 1983, our banks had to labour under the yoke of federal regulations that prohibited them from offering home loans to customers above 13.5 per cent. Credit was in such short supply, few were offered enough cash to buy a home.

It wasn't until our banks discovered cheap offshore credit in the mid-1990s, and brought the cash onshore, that we suddenly had ''affordable'' home loans. But the cheaper credit simply shifted the price of real estate higher.

It was a windfall for the banks, for the real estate boom resulted in ever larger loans. And those larger loans bloated the earnings of our major banks, a financial perpetual motion machine that now came to an end more than two years ago.

As a nation, it's left us with a serious, but not insurmountable foreign debt problem. (That's right, it's a private, not a government, debt that is the problem.)

It also is the reason global ratings agencies are considering downgrading our banks, particularly given the threat to international finance from Europe. And it goes a long way to explaining why our banks have aggressively switched back to domestic funding, to raising their cash at home. The adjustments are in place. A crash? Don't bet the house on it.

Property Crash Just a Myth

Chinese Buyers Pick Up Property in Australia

2012-02-05T17:54:00.000-08:00

Foreign developers made up about 30 per cent of the Australian market last year, and China took up 9 per cent of that – an increase over previous years.

The China Daily News reported that more than 1,200 apartmentswere either planned, being marketed or were under construction by Chinese companies in Australia in the fourth quarter of 2011, according to real estate firm CBRE. The Chinese mainland was only led by Singapore (37 per cent), Hong Kong (20 per cent) and Malaysia (12 percent ).

They did not offer comparison numbers for 2010.

Chinese investment is being driven by rising Chinese wealth, a desire for secure investment, and freehold laws. “Unlike in China, once a buyer purchases property in Australia, it’s theirs forever and can be passed down from one generation to another”, Melbourne real estate agent Chris Bevan told China News Daily.

Bevan said his recent sales to buyers from Shanghai ranged from two-bedroom apartments priced at $300,000 to a luxury beach-front home for $18 million around Melbourne.

He said JPDixon, the company he represents, has attended property shows in Shanghai for the last three years. “(This)helps keep our real estate and economy growing,” he said. Another factor driving investment is the Australian education system: There are some 160,000 Chinese students in Australia, and many Chinese families who can afford it would prefer to buy an apartment nearby.

It's Going to Be the Year of the Unit - Apartments Sydney

2012-02-04T03:36:00.000-08:00

New or old, apartments will be a popular choice for Sydneysiders in 2012.

It's just possible that apartments, especially those at the cheaper end, are one bright spot in Sydney's real estate market.

Prices generally for units have performed better than those of houses during the past five years, according to RP Data - with units recording average annual growth of 5.2 per cent compared with 3.6 per cent for houses. In the 12 months to December, RP Data reports unit prices rose by 0.9 per cent, while house prices fell by the same amount.

RP Data's senior research analyst, Cameron Kusher, says units should continue to do well this year and the more affordable ones should do best, even though there will be fewer first-home buyers now that the stamp duty exemption has ended for existing properties under $600,000 (it continues for new properties).

Kusher and other experts believe there are several reasons why units will continue to prove popular. The most obvious is that in a city as expensive as Sydney, they are the cheapest way into the property market. And with rents continuing to climb and the rental market in most suburbs very tight, this creates an incentive to buy.

A director of Richardson and Wrench, Peter Baldwin, believes the rising cost of renting makes buying a unit a much more sound option at the moment. ''It will be a price-factor thing,'' Baldwin says.

''The young ones won't be able to afford houses.''

A second reason for the popularity of apartments is that Sydneysiders are actually growing to like living in them.

''There's no doubt about it, people are embracing apartment living,'' says the senior economist at Fairfax-owned Australian Property Monitors, Andrew Wilson.

Prices

One of the biggest influences on the price of apartments (and houses) this year could be decided this week. The Reserve Bank is widely tipped to announce the first of several more cuts to interest rates on Tuesday, which, if banks pass the cuts on, would make prices more affordable.

The head of real estate strategy at Macquarie Capital, Rod Cornish, says if the cuts occur, affordability will ''be getting back to 2002 levels''.

''That is going to encourage the market to stabilise first and by the second half of this year, we think there will be some mild growth,'' he says. ''[That will be] predominantly growth in the mid-price range - $400,000 to $800,000 - because that's the one that will be most affected by the cuts.''

Baldwin says two rate cuts this year would be ''kindling to light the market'' and would ''really be a fillip to anyone'' buying. But he is not confident there will be much price growth. ''If it flatlines, that's the best possible result for the [apartment] market this year.''

Wilson predicts that if the economy continues to grow this year, the market for prestige apartments, along with the rest of the apartment market, should also start to pick up.

The managing director of Meriton, property developer Harry Triguboff, is more bullish. He thinks unit prices will rise by between 5 per cent and 6 per cent this year, although there will be nothing like a boom. ''Councils never approve enough [developments] so it will just go up gradually,'' he says.

On the lower north shore, apartments under $1.5 million will be popular because prices have stopped falling and buyers can see more chance for capital growth, says the principal of Belle Property Mosman, Tim Foote. ''I'm not predicting that prices are going to improve dramatically but I think there will be activity,'' he says. His office has already had strong interest from buyers this month.

The same is happening in the eastern suburbs and inner west. In Bondi, a unit that was for sale with expectations of $520,000 to $530,000 last year sold this month for more than $540,000, says the managing director of Morton and Morton, Ewan Morton. He says the start of this year has been much busier than that of last year, which he thinks is because buyers and sellers need to ''get on with things. They can't sit and wait forever.''

Baldwin predicts the most popular suburbs for apartments this year will be those close to public transport and within easy reach of the city centre, in particular Parramatta, Ashfield, Marrickville and the area from Epping back to Meadowbank. Buyers will mainly be owner-occupiers, especially upgraders, Cornish says, while investors will be more cautious until they see the market has stabilised and prices are rising.

New v old

The senior director of residential properties at CB Richard Ellis, Tim Rees, thinks there will be a lot of activity this year from buyers wanting affordable new and off-the-plan apartments up to $900,000. But the real ''market drivers'' will be several state government incentives that encourage buying off-the-plan or new dwellings under $600,000.

One of them, stamp duty exemptions for first-home buyers, has just ended for existing properties but they continue for new and off-the-plan dwellings. Another, the Home Builders Bonus scheme, gives all other buyers a full exemption on stamp duty for off-the-plan dwellings where construction hasn't started, or a 25 per cent discount where it has. However, this scheme finishes on June 30 and Rees says this will create a lot of demand in the first half of the year.

CB Richard Ellis alone has more than 12 off-the-plan projects earmarked for sale before July, all of which are in inner and middle-ring suburbs, such as Mosman, Homebush and Macquarie Park, Rees says. So far this year, they've sold 40 apartments, a better result than this time last year, which Rees says is also a reflection of interest rates coming down and a tight rental market.

The managing director of residential for Colliers International, Peter Chittenden, says there has been consistent interest in apartments under $600,000 in the past year, something he thinks will continue until closer to the June 30 cut-off. After that, some developers might extend this exemption themselves by offering to pay buyers' stamp duty to maintain their market share, Chittenden says.

Meriton, too, will be building several hundred more apartments this year than its usual annual total of 1500, Triguboff says, in areas such as South Sydney, Rhodes, Epping, Warriewood and St Ives.

Despite this strength in new apartment sales, Cornish believes there aren't enough being built to satisfy demand and there is ''not as much new construction as there has been in previous cycles''. Most of the demand will be for established apartments, he says.
Mani's ready to enjoy the calm after the storm

Mani Thiru has been in Australia for just six months but has decided now is the time to buy an apartment.

The British-born IT worker of Sri Lankan heritage spent the past decade in the Netherlands and came to Australia last year for work. Since arriving, she has lived in Mosman, near the beach.

She wants to buy in the same area and is looking for a one- or two-bedroom apartment, possibly with a view of the water, up to $600,000.

Thiru says she usually invests her savings in the sharemarket but economic uncertainty in Europe, cuts to interest rates here, plus the high cost of renting encouraged her to buy.

''The stamp duty concessions were in place last year, which I think inflated the prices, especially towards the end,'' she says. ''It felt like there was a lot of competition last year whereas now it seems to have calmed down.''

So far, Thiru has seen several units she likes, one of which is being sold by Adam and Jasmina Vernon of Belle Property Mosman.
Investors read the signs of the times

Just a few weeks into the year and already Bahar Etminan, the editor of fashion and beauty website rescu.com.au, and her town-planner husband were pounding the pavement looking to buy an investment property.

The couple, who have a young daughter, are renting in the eastern suburbs while they save up to buy a house. They have been investing in apartments every 12 to 18 months as a way of working towards this goal and already have several investment properties close to where they live.

They started looking for their latest purchase - a two-bedroom unit, possibly with a study up to $650,000 - towards the end of last year but Etminan says the time is right to buy because ''prices have come back a bit''.

They're looking in areas that they know - Woollahra and back towards Bondi Junction, Double Bay and Darling Point, all suburbs that are close to public transport, shops and have strong rental yields and good capital appreciation, she says.

''People are talking about the market getting lower and lower but, in the price range we're looking at, I don't think it's going to bottom out,'' Etminan says.

''It seems to be a fairly stable price range and also excellent for rental returns.''

It's Going to Be the Year of the Unit - Apartments Sydney

Big Four Tighten Grip on Market With Mortgages up $175bn

2012-02-04T03:09:00.000-08:00

THE big four banks have further entrenched their dominance in the Australian market, growing by tens of billions of dollars despite Labor reforms to increase competition in the retail banking sector.

Exclusive analysis of APRA data by The Weekend Australian indicates that in the three years from when the global financial crisis hit in 2008, the big four have grown their mortgage books for owner-occupier housing by more than $175 billion, eclipsing smaller lenders.

'Predatory' lenders seek ASIC approval June 30, 2010 (Austrlia Mortgage)

2010-06-29T18:08:00.000-07:00

Australian LENDERS named in a landmark predatory lending case have registered as consumer credit providers under the Australian Securities and Investments Commission's new national licensing program.

ASIC is taking over regulation of all consumer lending, including credit cards, store cards and mortgages tomorrow, replacing the state-by-state approach.

Bleier Mortgage Corporation, in Double Bay, and Permanent Mortgages, in Traralgon, Victoria, have registered to become credit providers. The registrations, the first step in gaining consumer credit licences, have been made although both lenders were named in a 2006 ruling in the NSW Supreme Court about predatory lending.

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Length of Reserve Bank's interest rate pause will depend on inflation

2010-06-03T03:53:00.000-07:00

HOW long the Reserve Bank pauses on interest rate hikes hinges on the next Consumer Price Index release due late next month.
If the June quarter CPI shows underlying inflation falling into the RBA's 2-3 per cent target zone, Glenn Stevens will be encouraged to keep interest rates at neutral for most of this year, as he seeks to manage Australia's two-speed economy.

If it doesn't, the RBA will have to again increase its public inflation forecasts to the top of, or even above, its target zone. The RBA governor surely knows this would threaten the central bank's hard-won low-inflation credibility and force him to into a restrictive monetary policy mode.

This could result in rate hikes resuming from the scheduled August 3 board meeting.

The changed form of Stevens' report from Tuesday's monthly board meeting clearly underlines the new, neutral phase of monetary policy.

His statement was one-third shorter than usual, and by avoiding the usual discussion of the domestic economy it suggests the RBA is not searching for a trigger to raise interest rates soon.

Between October last year and May this year, the RBA lifted its cash rate from 3 per cent to 4.5 per cent in six 25-basis point steps.

Stevens this week called it a "significant adjustment" from the "very expansionary settings" in response to the global financial crisis.

Neutral monetary policy now is "appropriate for the near term".

While the timing is deliberately vague, the RBA's favoured choreography is to pause for six months or so after adjusting monetary policy in a series of quick, small steps.

Stevens's statement focuses on an additional reason for the RBA to stay on the sidelines for a bit. When he lifted the cash rate to 4.5 per cent in early May, Stevens suggested the Greek sovereign debt crisis had produced "very little contagion" outside Europe.

Almost immediately, however, the Greek crisis spread dramatically to global financial markets. Further bouts of market instability are likely.

Stevens now says the new sovereign debt crisis "will need to remain under review".

But he still expects the global economy to post trend growth this year, with budget tightening weighing on soft European economies, the US recovery becoming more established and China-based Asia expanding, perhaps too vigorously.

That underpins the Reserve Bank's central scenario that high iron ore, coal and other commodity prices will fuel national income and spending, and push the economy toward its trend growth rate of 3.25 per cent or so over the coming year.

Yesterday's national accounts suggest the economy is heading back to trend growth, expanding 0.5 per cent in the March quarter and 2.7 per cent over the year. But growth remains uneven as last year's budget stimulus gives way to a new wave of mining development. Retailers are complaining about soft consumer spending.

Stevens no doubt would love to keep the Goldilocks combination of trend economic growth, neutral interest rates and target zone inflation going as long as possible.

But, while the heat is coming out of housing prices, it's not clear that CPI inflation is becoming re-anchored inside the 2-3 per cent target.

In part, this reflects double-digit price increases for electricity, gas and water required to pay for a catch-up of infrastructure investment.

The shallow downturn means the economy is operating with less spare capacity than expected. The higher dollar has pushed down import prices and allowed retailers to discount heavily.

This is unlikely to keep giving and, with unemployment forecast to edge below 5 per cent, catch-up wage demands could start pushing up labour costs. In May last year, the Reserve Bank forecast that a sharp economic downturn would push underlying inflation to 1.5 per cent, comfortably below target, by mid-2011. But the inflation outlook has worsened in every quarterly forecast since then.

A mildly disappointing March quarter CPI result forced the RBA economists to tip that prices growth would edge down only slightly to 2.75 per cent this year and next before nudging back up to 3 per cent in 2012.

That prompted the RBA's May board meeting to increase the cash rate when a pause had been on the cards.

The issue is whether the June quarter CPI, slated for July 28, will again disappoint. To maintain the credibility of its low inflation regime, the central bank can't do nothing if inflation threatens to move above target again.

The Reserve Bank's mantra is that it had to go through the deep recession of the early 1990s to break the back of high inflation.

It had to work hard after that to establish the policy independence and credibility that has underwritten nearly two decades of low-inflation economic expansion.

It may have to do the unpopular thing again to keep that credibility intact.

Source: The Australian