June 4, 2015

A Menace To The Economic Welfare Of The People

A look at the housing bubble fight down-under. The West Australian. “Prime Minister Tony Abbott says Labor leader Bill Shorten is talking down asset values to the detriment of families. Treasury boss John Fraser sparked the debate on Monday, telling a Senate estimates hearing that Sydney and wealthier parts of Melbourne are ‘unequivocally’ in a housing bubble. Mr Shorten asked Mr Abbott in parliament on Tuesday whether he believed Mr Fraser was right. ‘Does the prime minister have a plan for housing affordability for young Australians locked out of the housing market?’ Mr Shorten asked.”

“Mr Abbott said it was a ‘bizarre line of questioning.’ ‘What we do not want to do is to jeopardise the future of Australian families who are buying their homes by reducing the value of their biggest asset,’ Mr Abbott said.”

The Guardian. “Abbott said millions of Australians had home mortgages and the last thing they wanted to see was a decline in the value of their most important asset. He then turned the attack on the opposition leader, claiming that Shorten was saying people’s houses were worth too much and was ‘talking down our economy.’ ‘This is someone who wants to be the prime minister of Australia and he wants your house to be worth less,’ Abbott said. ‘What I don’t want him to do is wreck the housing market of Australia … Just imagine how you would go if you had to repay your mortgage and your house was not worth what it was when you bought it. That is the spectre that this leader of the opposition is now holding out to the people of Australia.’”

“‘What this proves is that this leader of the opposition is a menace to the economic welfare of the people of Australia,’ the prime minister said.”

The Daily Telegraph. “Analysis done for The Daily Telegraph showed Mr Abbott paid $351,000 in 1994 for his home and it is now worth $1.5 million. In comparison, Mr Shorten’s Melbourne home, which was purchased for $842,000 in 2009, would be worth $1 million. Belle Property Seaforth agent Matt Brady said Mr Abbott’s house — with four bedrooms on 696sq m — would be worth in the ‘mid $1 millions’ but was far from being flash. ‘He lives in a modest home in a modest street,’ he said.”

Smart Property Investment. “Lenders across the country are continuing to introduce measures to crackdown on investor activity. Wayne Byres, chairman of the Australian Prudential Regulation Authority (APRA) said investigations into hypothetical borrower scenarios found that ‘common sense was sometimes absent’ when it came to the banks’ treatment of borrowers’ income sources and credit assessment processes. He also said lending standards were ‘a little disconcerting in places.’”

“A particular area of concern arose in regards to lenders factoring in negative gearing benefits to investors’ serviceability calculations and failing to accurately account for investment property holding costs. ‘Another area of interest was the discount of ‘haircut’ applied to declared rental income on an investment property. The norm in the ADI [Authorised Deposit-taking Institution] seems to be a 20 per cent haircut, but we noted in our exercise that some ADIs based their serviceability assessment on smaller, or even zero, haircuts,’ Mr Byres said.”

“‘Bearing in mind that the cost of real estate fees, strata fees, rates and maintenance can easily account for a significant part of expected rental income, and this does not take into account potential periods of vacancy, the 20 per cent norm itself does not seem particularly conservative. We also came across a few instances in which ADIs were relying on anticipated future tax benefits from negative gearing to get a borrower over the line for a mortgage.’”

From MyWealth. “Australian capital city dwelling values in May recorded their first monthly fall since November 2014, according to CoreLogic. The drop of 0.9% in dwelling values for the combined capitals from April to May is nevertheless dwarfed by the 9% yearly rise to May, driven by Sydney and Melbourne property markets recording growth of 15% and 9% respectively. However, both those markets also fell last month, with Sydney prices sliding by 0.7% and Melbourne by 1.7%.”

“Tim Lawless, CoreLogic RP Data head of research also notes ‘over the past three years, dwelling values have risen more than three times as fast as rents. The net result is that gross rental yields have been compressed from 4.3 per cent back in 2012 to the current average gross yield of 3.7 per cent across the combined capital city index.’ However, Lawless argues ‘clearly, investors are not bothered by the low rental yields that are currently available with housing finance data showing investors comprise a record 51 of the value of new home loan originations.’”

The Sydney Morning Herald. “Criminals are targeting Australian real estate as a safe haven to launder money and hide the proceeds of crime, according to the national money laundering watchdog. ‘Criminals buy high-value goods such as real estate as a way of laundering or concealing illicit funds,’ the Australian Transaction Reports and Analysis Centre said in its report, Money laundering through real estate agents. The AUSTRAC report says criminals are drawn to real estate as a channel to launder illicit funds because they can ‘buy real estate using cash’ and ‘disguise the ultimate beneficial ownership.’”

“The ‘relatively uncomplicated’ nature of property transactions made it easy to wash large volumes of cash. ‘Large sums of illicit funds can be concealed and integrated into the legitimate economy through real estate,’ it said. Most pointedly, the report showed how criminals were hiding behind friends or family members and also taking out loans to disguise illicit funds as mortgage repayments. ‘Criminals may seek to buy property using a third party or family member as a legal owner,’ it said.”

From Fairfax. “The mystery owner of Australia’s most famous trophy home, Altona in Sydney’s Point Piper, is a Chinese property developer who concealed his investment behind an elderly Melbourne couple to avoid foreign investment laws. Fairfax can reveal that businessman Wang Zhijun paid $52 million for the harbourside mansion through a complex holding structure of shelf companies and holding trusts, including opaque nominee arrangements stretching from the Melbourne suburb of Elwood to the British Virgin Islands.”

“Fairfax can now reveal Mr Wang did not have permanent residency when he bought Altona two years ago, despite laws preventing foreigners from buying established housing. On Tuesday lawyers for Mr Wang’s interests took Fairfax Media to the Victorian Supreme Court in an unsuccessful attempt to prevent publication of this story. The revelation solves the most talked-about riddle in Australian real estate but raises major questions about the growing tide of offshore money washing into the Australian property market.”

The Australian Financial Review. “Mortgage arrears have risen sharply in mining towns over the past 12 months, coinciding with a fall in the iron ore price and a pull-back in mining investment, according to a new Standard & Poor’s report. Mining town arrears rates could rise further over the next decade with broker Citi downgrading its long-run iron ore price forecast form $US81 a tonne to $US55 a tonne by 2025 and quarterly Australian Bureau of Statistics figures showing private-sector mining investment down 4.1 per cent in the March quarter, its sixth straight quarterly decline.”

“LJ Hooker Pilbara estate agent Marg Hunter said there were ‘no enquiries whatsoever’ for properties she was selling in the WA mining zone. ‘I’ve not had a sale sign since December,’ she said. Ms Hunter said prices had fallen by as much as 50 per cent for some properties. ‘Properties that had been rented out at $2500 a week a year ago are now available at $400 to $500 a week,’ she said.”

“Ryan Crawford, director of the Crawford Property Group, which has offices in Hedland, Newman and Karratha, said over the last 12 months demand for housing in the Pilbara has reduced substantially ‘as mining companies large and small begin to tighten their belts in reaction to global resource prices and decreased exploration and expansion activity.’ ‘The recent downturn has brought previously overheated pricing down to much lower levels in these regions, while existing investors are battening down the hatches and adjusting to lower rents,’ he said.”

Bits Bucket for June 4, 2015

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