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Property Investment News Summary: W/C 14/5/18


Home price growth at slowest in five years

A slowdown in Sydney has crimped growth in average capital city home prices around Australia but data analytics firm Corelogic says the worst is probably over.

In the year to March, the value of Australian capital city homes grew at a little over one per cent - compared to a rise of 9.1 per cent a year earlier - a new Corelogic report says, making for the slowest rate in more than five years.

Nationally, housing price growth has "stopped in its tracks," with combined housing values retreating by 0.5 per cent over the first quarter.

At the heart of the slowdown are falling prices in Sydney and to a lesser extent Melbourne, the two biggest housing markets.

Given years of surging house prices and consequent impact on affordability and rental yields - the first quarter of this year was the weakest first quarter for rental growth in Sydney since 2009 - the falls are "understandable" CoreLogic said.

Both cities attract the most foreign migration and property investment, consequently bearing the brunt of the Australian Prudential Regulatory Authority's July 2017 cap on interest-only lending to investors

New interest-only mortgage lending over the December quarter has fallen to $15.3 billion down from $37.9 billion a year earlier, according to APRA's quarterly authorised deposit-taking property exposures data, released in March.

With fewer investors, the number of properties being advertised is rising, particularly in Sydney, giving property buyers more time and less competition.

The slowdown in Sydney is marked by falling values at the top end of the market while the lower-priced housing is holding its value.

This is most likely linked to first home buyer incentives including the removal of stamp duty under certain conditions in NSW and Victoria from July last year, CoreLogic said.

With affordability stretched and a royal commission into financial services unlikely to result in looser lending policies, CoreLogic warns that values are likely to continue to decline over the coming quarters, particularly in Sydney and Melbourne, but several factors indicate a soft landing is likely.

Credit conditions are likely to remain tight, but low mortgage rates supported by record low cash rates will continue to keep a floor under housing demand.

High overseas migration and the recent announcement by APRA that, for approved lenders, the ten per cent cap on new investment lending would be lifted from July 1, are also expected to be supportive.

Although both investment and construction activity have slowed recently, both remain well above long-term averages.

CAPITAL CITY DWELLING PRICE GROWTH 12 MONTHS TO MARCH 2018:

*Values rose 13 per cent in Hobart.

*Values rose 5.3 per cent in Melbourne

*Values rose 1.3 per cent in Brisbane

*Values rose 1.7 per cent in Adelaide

*Values rose 2.9 per cent in Canberra

*Values fell 2.1 per cent in Sydney

*Values fell 2.4 per cent in Perth

*Values fell 7.5 per cent in Darwin

WA budget targets foreign home buyers

Foreign buyers purchasing West Australian homes will be hit with a seven per cent surcharge, almost doubling the planned levy as Treasurer Ben Wyatt prepares to hand down his second budget.

The fee will apply to overseas buyers purchasing residential property only, with commercial and large residential developments to remain exempt.

It is estimated to raise $123 million in revenue between 2018/19 to 2012/22.

Mr Wyatt said increasing the surcharge from four to seven per cent will help WA's finances and bring it in line with other states.

The levy will kick in January 1.

Households are also expected to be slugged substantial cost of living increases.

Water Minister Dave Kelly has already revealed water charges for the representative household will increase by 5.5 per cent in 2018/19.

Shadow treasurer Dean Nalder told reporters ahead of Thursday's budget the Water Corporation was making tidy profits and was "over-recovering".

Other already-revealed cost of living increases include Emergency Services Levy rises to create a rural fire service.

Metropolitan landowners will pay an additional $28 from July 1 while landowners in the regions will pay between $8 and $17 extra.

Mr Nalder said households were already doing it tough with stagnant wage growth, and pointed to a big rise in applications for the Hardship Utility Grants Scheme last year.

"We think it's inappropriate that the state government at this point in time is putting pressure on the households of Western Australia," he said.

Treasurer Ben Wyatt has already revealed the 2018/19 deficit has narrowed to about $900 million, down from the $915 million forecast in the mid-year budget review.

He also says the state remains on track for a surplus by 2020/21 but it will take a long time to pay off debt, which was forecast in December to peak in 2019/20 at $42.8 billion.

CBA cites wages as mortgage arrears rise

Commonwealth Bank says home loan arrears rose in the third quarter as borrowers struggled with stagnant wage growth and the rising cost of living.

Australia's largest mortgage lender says the number of home loans whose repayments are 90 days or more overdue rose to 0.65 per cent of its book in the three months to March 31, from 0.59 per cent three months earlier.

"There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth," CBA said in a trading update on Wednesday.

Stripping out Western Australia, which has been hit by the end of the mining boom, home loan arrears still rose from 0.47 per cent to 0.53 per cent.

CBA made a third-quarter cash profit of $2.35 billion, with its lending margin hit by customers switching from interest-only to principal-and-interest mortgages.

The unaudited cash profit was two per cent lower than the average profit of each of the first quarters, and 2.1 per cent lower than the unaudited figure for the prior corresponding period.

CBA said net interest income was broadly flat, but that net interest margin - a key measure of lending profitability - fell due to the move away from higher-rate interest-only lending.

APRA's requirement that CBA holds an additional $1 billion in regulatory risk capital until it addresses regulatory concerns dropped its Common Equity Tier 1 ratio to 9.8 per cent on a pro rata basis.

However, CBA said the sale of its life insurance operations in the first half of FY19 will add 0.70 percentage points to the CET1 capital ratio.

Victoria's $7.8b road and rail windfall

It seems Canberra does know how to find Victoria on a map with the state being gifted a $7.8 billion lion's share of the Turnbull government's splash on roads and rail in the federal budget.

Most of Victoria's perks in the infrastructure-heavy budget on Tuesday have previously been announced, including up to $5 billion for a rail link between Melbourne Airport and the city.

It is the single biggest infrastructure investment in the 2018/19 budget, with "specific funding arrangements" to be "settled at a later date" and an expectation that the state will match the cash.

The federal government had flagged the option of investing in the project with the expectation of eventually getting its money back - rather than giving the state a straight-out grant.

The budget also includes $1.75 billion for the North East Link and $457 million for a rail link between Monash University's Caulfield and Clayton campuses.

The airport rail line, subject to a business case due in September, and the North East link were the two items on Victoria's federal budget wish list.

Canberra will also give $20 million to make Avalon Airport ready to accept overseas flights, paving the way for the state's second international airport.

The money, earmarked for 2018/19, will help the airport accommodate the arrival and departure of more than 400,000 passengers every year.

There's also $50 million over four years for a hydrogen energy supply chain pilot project in the Latrobe Valley, converting brown coal into liquid hydrogen to be shipped to Japan, as announced in April.

The budget confirms the state will receive $2.1 billion for its share of Snowy Hydro on the proviso it invests the proceeds into infrastructure projects.

Premier Daniel Andrews - who will face an election in November - said on Monday it was a "good day" for the state with the announcements flowing ahead of the budget.

"We've run a strong campaign to get a fairer share for Victoria; that campaign has worked," he said.

Money for the $7.8 billion worth of projects has been set aside in the forward estimates.

Victoria will also benefit from some $95.4 million to create the Murray Darling Medical Schools Network in NSW and Victoria, including Monash University in Bendigo and Melbourne University/La Trobe in Bendigo, Wodonga and Shepparton, to train and retain more doctors in rural and regional areas.

In in the hours prior to the budget's release Health Minister Jill Hennessy said it was time for funding certainty into hospitals and schools, hoping for "fair and reasonable funding agreements" in the budget.

Housing affordability to slowly improve

It's getting easier for new mortgage borrowers to meet their repayments as the country's largest property markets begin to cool, according to credit ratings agency Moody's Investors Service.

Across Australia, new borrowers needed on average 28.2 per cent of their monthly income to meet home loan repayments in March 2018, down slightly from 28.3 per cent a year earlier, Moody's said in its latest housing affordability report.

"Looking at the rest of 2018, we expect housing affordability to continue to improve moderately on average because of softening housing market conditions, particularly in Sydney and to a lesser extent Melbourne," Moody's Vice President and Senior Analyst Alena Chen said.

"On average across Australia, housing affordability in March 2018 was also better than the average for the past 10 years."

Affordability improved in Sydney, Perth and Brisbane in the year to March, but deteriorated in Melbourne and Adelaide.

Growth in average weekly income in Melbourne was 3.8 per cent, higher than in any other capital city over the year, but not enough to offset growth in house prices of 11.7 per cent.

"In Melbourne, housing prices declined in recent months, but prices still increased strongly over the year to March 2018," Moody's said.

"We expect the tempering of house price growth in Melbourne over recent months to continue through 2018, a positive for housing affordability."

House prices in the five major capital cities slipped last week, by a combined 0.1 per cent, while prices are down 1.2 per cent so far this year, according to property data firm CoreLogic.

Some 2,539 homes went under the hammer across the capitals in the week to April 29, with a success rate of 62.5 per cent, creeping slightly above last week's final clearance rate of 62.2 per cent.

Melbourne prices led last week's decline, dipping 0.2 per cent, while Sydney and Brisbane each fell 0.1 per cent.

CAPITAL CITY PRIVATE TREATY MEDIAN PRICES:

Sydney - house $920,000, unit $690,000

Melbourne - house $716,500, unit $555,000

Brisbane - house $531,000, unit $375,000

Adelaide - house $437,000, unit $312,000

Perth - house $506,250, unit $395,000

Hobart - house $425,000, unit $355,750

Darwin - house $527,500, unit $355,000

Canberra - house $665,000, unit $419,500


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