The “base case” for the Australian residential property market is that prices will continue to be supported, while the current economic conditions prevail, according to S&P Global Ratings.
S&P held a property sector briefing in Sydney last week, where the group’s director of financial services ratings, Shared Jain, said he expected there would be a “slow unwind in the growth rate” over the next 18 to 24 months but no correction.
Erin Kitson, S&P’s director of structured finance ratings, says mortgage arrears rates have “ticked up” over the past year but are coming off a low base.
She says the arrears issue is most pronounced in non-metropolitan areas and in the mining regions of Western Australia and Queensland.
Kitson says: “While unemployment remains stable, we don’t expect to see these higher arrears turn into higher defaults.”
She says there is a big “LVR buffer ” in mortgage portfolios, with the average loan-to-valuation ratio on established mortgages at around 60 per cent. “A good amount of equity has been built up,” she says.
According to the latest CoreLogic figures, capital city dwelling prices rose an average of 1.5 per cent in July and 10.5 per cent over the 12 months to the end of July.
Sydney prices were up 1.4 per cent for the month and 12.4 per cent for the 12 months, Melbourne prices were up 3.1 per cent for the month and 15.9 per cent for the 12 months, and Brisbane prices were down 0.6 per cent for the month and up 2.2 per cent for the year.
Paul Mirams, a partner in Korda Mentha’s real estate division says there are two important things to know about the city apartment market: foreign buyers account for about half the buyers; and banks have tightened up on lending to developers.
“We have seen a big increase in Foreign Investment Review Board applications from foreign apartment buyers. They are buying 50 per cent of the new apartment stock,” Mirams says.
“That must have an effect on the price of new apartments that will flow into established stock. Nothing is going to slow price growth while that is going on.”
Mirams says the volume of new apartment development will fall as a result of banks’ tightening their lending to developers.
“Demand will still be there and that imbalance will see pressure on prices,” he says.
John Arentz, Stockland’s general manager treasury and planning, says the Australian Prudential Regulation Authority has been prudent with its calls for lenders to limit growth in investor and interest-only mortgage lending.
“There is still demand for our residential product. The next 12 months look buoyant,” Arentz says.