Westpac Bullish On Economy, Property

Westpac has downplayed the prospect of regulators stepping in to curb the boom in house prices and promised to slash $2 billion from its cost base within the next few years to become a leaner bank.

A rapidly rebounding economy, with consumer sentiment at a decade-high and a drop in soured loans, enabled the bank to more than treble its halfyear
cash profit from $993 million to $3.5 billion.

Westpac chief executive Peter King has maintained his forecast that residential property prices will rise 20% by the end of next year, although most of the increase will now be front-ended into 2021 before housing supply constraints ease next year.

He contrasted the current boom to previous cycles, saying the riskier interest-only segment was much lower this time.

“Last time, there was more investor activity, high LVRs and more interest-only lending,” he says. “It’s not happening this time.”

The Australian Prudential Regulation Authority has no mandate to contain growth in house prices, but might to intervene if lending standards deteriorate, King says.

Home Loans Reach Record Levels

Home loan commitments reached record levels in March with a 5.5% monthly rise, according to data from the ABS.

The figures provide further evidence of the entry of investors to the national boom market, with a 12.7% rise in loans for investor housing. The Property Council of Australia says lending to investors accounts for over half of the March rise in housing loan commitments.

“Investor lending has seen a sustained period of growth since the 20-year low seen in May 2020,” the PCA says. “The rise in March is the largest recorded since July 2003 and was driven by increased loan commitments to investors for existing dwellings.”

The value of owner-occupier loan commitments for the construction of new dwellings fell 14.5%, the first fall since the HomeBuilder grant was introduced in June 2020.

The biggest monthly increases in loans during March were recorded in New South Wales (up almost 10%), following by Queensland (up 5%).

Prices Up 9% In 4 Months

Australian house prices have risen almost 9% in the first four months of 2021, following a further rise of 2% in April, according to CoreLogic figures.

House prices rose in all 15 major markets (eight capital cities and seven state regional markets) during April, with increases ranging from 0.5% in Regional WA to 2.7% in Darwin and Regional Tasmania, and 2.8% in Sydney.

In the year to date, house prices have increased by at least 6% in all the capital cities, with Canberra up 9%, Darwin 10% and Sydney 11%. In regional Australia, NSW, Queensland, Victoria and Tasmania have all risen 8-10% in the first four months of 2021.

In annual terms, house price growth has been led by Regional Tasmania and Darwin, which have lifted 18% in the 12 months to the end of April. Regional NSW and Canberra are both up 16%.

Apartment prices are also rising, with a 1.2% national increase in April and 4.7% in the year to date. In annual terms, the best are Regional Victoria (14%), Hobart (12%) and Regional NSW (11%).

No Tax Changes Expected In Budget

 

With a pre-election Federal Budget looming, property investors are confident tax measures won’t be changed.

While Federal Opposition Leader Anthony Albanese looks set to press ahead with changes to negative gearing and capital gains tax, despite these being considered the policies that lost Labor the 2019 election, the Federal Government is expected to remain in favour with investors on Budget night on 11 May.

“Parties don’t mess around with property and tax pre-election,” says Right Property Group’s Viktor Kumar. “If they do, they get annihilated at the election.”

The link between a strong property market and economic recovery is also tipped to play on the minds of Josh Frydenberg and Scott Morrison ahead of Budget night.

In a recent Budget submission, the Real Estate Institute of Australia says negative gearing and capital gains tax on property investments should be retained in their current form.

Stockland Sees Ongoing Buyer Demand

The country’s largest property developer says demand for new dwellings is more widespread than that generated by government stimulus measures.

Stockland chief executive Mark Steinert says the company had come through the worst of the coronavirus crisis and expects the current strong buyer demand to continue.

“Importantly, as the economic and business environment has improved towards pre-COVID levels, industry support measures such as the Commercial Code of Conduct and HomeBuilder concluded at the end of the quarter without any evidence of adverse outcomes,” Steinert says. “There‘s a lot of owner occupier demand and first-time buyer demand that ultimately ended up being deferred and it’s that demand that really got stimulated by HomeBuilder.”

Stockland expects to settle 6,300 homes this financial year after a strong March Quarter result of 1,891 lots, up 69% on the same quarter last year.

Steinert notes “the best affordability in all the key markets that we’ve seen in a decade.”

Tassie Economy Leads, WA Rises

CommSec’s State of the States report has ranked Tasmania the nation’s best-performing economy for the fifth quarter in a row, the ACT remains in second
spot.

CommSec economist Craig James says Tasmania and the ACT have “solidly held” their top positions and are expected to stay there in coming months.

The report shows little to separate the five other major economies, with the Northern Territory still in eighth spot, although it has improved.

Western Australia is the most improved, leaping from joint sixth position to third, with mining and home building providing significant momentum.

Victoria has slipped from third position to fourth but remains the strongest for construction work and also jumped to the top spot for home lending.

South Australia is in fifth spot, followed by Queensland, then NSW, where annual population growth is at its slowest rate in 25.5 years.

Listings Fall, Despite Sellers Surge

Despite new sellers coming into the market in record levels this month, the number of homes available for sale has fallen to a decade low, with buyers still outpacing sellers.

CoreLogic data shows about 145,000 properties are available for sale around the country, the lowest number since 2010. This is despite new listings for the month being the highest since the peak of the market in 2017.
Confidence is spreading through the market nationwide after eight consecutive months of price rises, says CoreLogic’s Tim Lawless, with house prices rising by at least 5% in most market jurisdictions across Australia in the March Quarter.

The number of home sales for the first quarter of this year was 22% up on last year. Regional Australia is still performing at a stronger rate than capital city markets.

“I think we’ll gradually start to see that ratio of sales to new listings reducing – which means we’ll probably start to see the rise in overall stock levels progressively, which is a very healthy thing,” Lawless says.

Rents Respond To Low Vacancies

Rental markets across the country are responding to low vacancies, with the March Quarter recording the highest growth in average national rents since 2007.

There was a 3.2% rise in rents nationally in the March Quarter, which also marked a recovery in inner-city markets, with unit rents rising 2% for the combined capitals.

There are, however, wide discrepancies among cities, with growth subdued in Sydney and Melbourne, the only major markets with high vacancy rates.
Regional markets have continued their strong run, with rents climbing 4.1% in the March Quarter, after rising by 2.9% in the December Quarter. Regional units recorded the highest quarterly rental growth of 4.8%, compared with a 4.0% rise in house rents.

“At one end of the spectrum, we have Perth and Darwin where annual rental growth is well into double digits and accelerating,” says CoreLogic research director Tim Lawless. “At the other end is Melbourne and Sydney where rents are down over the year.”

 

Clearances Rise As Boom Continues

Capital cities recorded slightly higher clearance rates on higher volumes last weekend, building on the trend evident since Easter.

The combined capital cities had 2,448 auctions, which returned a preliminary clearance rate of 80.5%, according to CoreLogic’s Property Market Indicator. These results were higher than the previous week’s 2,199 auctions and preliminary clearance rate of 79.4%, which was revised down to 77% at final figures.

At the same time last year, only 30% of homes sold across 1,922 auctions, with confidence low as restrictions around onsite auctions and physical home inspections impeding activity.

Last weekend Canberra recorded the highest preliminary clearance rate at 87.4%, followed by Sydney with 84.8%, Adelaide 82.8%, Melbourne 78.1% and Brisbane 72.7%. Melbourne saw the highest number of auctions over the week at 1,204, followed by Sydney with 913, Canberra with 112, Brisbane with 104, Adelaide with 81 and Perth with 30.