Attention APRA, The First Phase Is Ineffective
By Louis Christopher on 19 Jun 2015
No Comments yet, your thoughts are very welcome
Photo Source: heraldsun.com.au
I am getting an increasing sense APRA’s recent action isn’t working. Since the announcement by the major banks of new restrictions four weeks ago, clearance rates have stayed above 80% in Sydney and 75% in Melbourne. This is hardly slowdown territory. On top of this I am having a strong sense that listings have fallen again from the levels in May.
Once APRA are convinced that their existing efforts to slow the market have failed, they will likely turn the screws again. When? We remain unsure, however given the frequency of their past actions, I am thinking sometime prior to Xmas.
And what will they do?
Well they may well just ask the banks to place tougher restrictions to get overall investment lending credit growth back under 10% pa. In other words, leave it to the banks on how they wish to meet the credit limit.
The risk with this approach is you unnecessarily slow down investor appetite across the country. This would not be a desired outcome for the RBA who have stated previously that they are relying on housing construction and I believe the “feel good” factor that is associated with rising house prices to keep the other parts of the economy from stalling.
My thinking is that APRA will increasingly follow the recent action by the Reserve Bank of New Zealand (RBNZ) and focus putting LVR limits specifically on Sydney real estate investors.
The RBNZ are now targeting specific areas where there is evidence of a bubble; that being Auckland where house prices have risen substantially.
Setting such a course for the Sydney market and perhaps, later in time, on the Melbourne market would be optimal for the RBA. It would enable to keep rates low if not lower and would tactically target the problem “bubble” areas.
We have perhaps already seen movement on this front with the news last week that ING Direct is going to reduce LVRs in NSW down to 80%. Mind you, as the comments suggested in the link, this is unlikely to materially slow the market there and ING face the risk of just lowering their own market share unless their peers follow them.
How much sway APRA has in persuading most of the banks to take a tactical approach to servicing and LVR restraints remains to be seen. Mortgage originators remain hungry for market share and no doubt NSW, especially Sydney is where the credit demand has been. It would be very enticing to the banks to quietly keep their offers open in NSW while perhaps tightening the screws elsewhere in order to meet an overall minimum 10% credit growth cap requirement.
For now it strongly feels like that it is up to the banks to work out how they keep to the new minimum APRA requirements.
For Sydney investors who were looking to get out of this current cycle, your bus stop is arriving soon. This is now a massive sellers market and much of easy gains have already been made after a three year surge in prices which will amount to over 50% in gains. From here while the market will still rise for the remainder of 2015 Sydney is fraught with additional risk, that being in the form of APRA.
The risk is, whatever the relevant authorities do from here, they may well overstep the market and cool the market down too quickly. We are in unchartered waters here. Macro prudential policy is a new policy tool that has not been fully tested before. I am sure no one high up has properly modelled out the “what-if” scenarios.
Meanwhile there are other locations which appear to be offering far better value and are primed for a rise, especially on the back of a lower Australian dollar.
Median Asking Price for Sydney is Above $1.1m
In other news the Sydney median asking price for a house topped $1.1 million dollar last week according to our asking prices series.
The median Sydney asking price for a house now stands at $1,108,000. The median Sydney unit asking price stands at $617,000.
Most interestingly it has taken Sydney just seven months to jump (November 7, 2014) from $1.0 million to $1.1 million. It is clearly evident that vendors are rapidly lifting their expectations in this Sydney Boom
The next highest in Australia is Perth where the median asking price for a house stands at $740,800.
The most affordable city appears to be Hobart where the median asking price for a house is just $388,000.
For those who wish to look up their postcode for the history of asking prices, you can go here to do so.
The National Vacancy Rate Continues to Rise
Figures released by SQM Research this week have revealed the number of residential vacancies climbed up across the nation in May 2015, with a vacancy rate of 2.4% posted based on 71,970 vacancies, up from 2.3% in April when vacancies were 69,295. Rates climbed in most capital cities, excluding Canberra, Sydney and Darwin were vacancy rates remained the same.
The biggest rise was recorded in Perth with a monthly change of 0.4 percentage points from April. Over the year, vacancy rates in Perth have continued to climb with a significant 1.1% jump from this time last year. Modest climbs were also posted in Adelaide.
Year-on-year, vacancy rates are down for Canberra, Melbourne and Hobart. Canberra has posted the biggest yearly fall in its vacancy rate from 2.3% to 1.9%, reflecting the tightening of the market post downturn. Hobart has also recorded ongoing yearly falls with vacancy rates dropping from 1.8% to 1.5% in May 2015.
Asking Rents
Notably, SQM Research data records falling asking rents in Perth, Canberra and, in particular Darwin, which has recorded a fall in asking rents of 13.5% for houses and 5.7% for units for the past 12 months. In contrast, Melbourne has recorded a rise of 3.3% for houses and 2.1% for units. Asking rents in Sydney and Adelaide have also recorded modest rises for the same period.
Managing Director of SQM Research, Louis Christopher, said “We continue to record ongoing, yet gradual rises in rental vacancies across the country. This has resulted in an overall stalling of weekly market rents without capital city asking rents recording largely unchanged rents for the last 12 months.
Holiday locations appear to be bucking the trend. The Gold Coast for example is recording rental increases of around nine percent, year on year.
The is the fastest rental growth I have seen for The Gold Coast since the 1980s.”
SQM’s calculations of vacancies are based on online rental listings that have been advertised for three weeks or more compared to the total number of established rental properties. SQM considers this to be a superior methodology compared to using a potentially incomplete sample of agency surveys or merely relying on raw online listings advertised. Please go to our methodology page below for more information on how SQM’s vacancies are compiled.
Key Points
- Nationally, vacancies rose during May 2015, recording a vacancy rate of 2.4%, up from 2.3% in April, coming to a total of 71,970 vacancies nationally.
- During May, vacancy rates climbed the most in Perth, up from 3.0% in April to a high 3.4%.
- Vacancy rates in Canberra, Sydney and Darwin remained the same from April 2015 to May 2015.
- Darwin recorded the highest vacancy rate of the capital cities at 3.5% in May 2015 based on a total of 992 vacancies.
- Darwin recorded the highest yearly increases in vacancies, climbing by 2.1 percentage points from a year earlier.
- Vacancy rates in Sydney remained tight in May 2015, and are up a modest 0.1 percentage points from this time last year.
