The Reserve Bank of Australia (RBA) has referred to housing activity reaching a “turning point” in the minutes from its November board meeting. The RBA pointed to various tentative indicators including a lift in private residential building approvals as well as progressive rises in auction clearance rates across Sydney and Melbourne. However, the bank indicated it would consider a further reduction in the cash rate next month or early next year, depending on the pace of economic recovery both globally and domestically.
New research issued by Bank of America Merill Lynch Australia offers a different view of the housing market. The market analyst suggests that despite the recent interest rate cuts over the past 12 months, house prices have remained at their weakest compared to the last ten years. Merill Lynch economists estimate median house prices are still 1.2 per cent lower than October last year, despite the cash rate being reduced by 1.5 percentage points and the standard variable rate reduced by about 1.15 percentage points. By comparison, house prices rose 37 per cent after the RBA slashed rates in the 2001 calendar year. Merill Lynch says the muted response is likely to continue as we approach the tail end of the mining investment boom.
Australian banks are tightening their lending standards according to a new survey conducted by UBS over September and October. Over the past six months banks have tightened underwriting standards in mortgages which UBS suggest is due to the repricing of loans. CEOs surveyed from the big four banks and other regional lenders said lending standards had tightened due to the current economic climate and concerns over the outlook for the housing market . The stringent standards are expected to continue despite demand for credit, set to remain subdued over the next year.
The Westpac-Melbourne Institute leading index, which indicates the pace of economic activity three to nine months into the future, rose 4.1 per cent in September up from 2.9 per cent the previous month. The rise suggests the Australian economy could be speeding up next year.
Auction results
Sydney recorded a 62 per cent clearance rate from 364 properties for auction, Melbourne cleared 65 per cent from 419 properties, Brisbane had a 36 per cent clearance from 38 properties listed and Adelaide cleared 45 per cent from 31 reported auctions.
Commercial property sector DEXUS Property Group’s
(ASX:DXS) wholesale property fund has scored a $290 million equity commitment from State Super Financial Services. DEXUS says the capital will be used to pay down existing debt facilities. The fund recently acquired a 50 per cent stake in commercial offices ‘Blue Tower’ in Brisbane and has committed to the re-development at the Westfield West Lakes Shopping Centre in Adelaide.
For those who invest in unlisted property schemes, a new guide issued by Australian Securities and Investments Commission (ASIC) is now available. Regulations were updated earlier this year. ASIC commissioner says investors should be made aware of risks associated with investing in unlisted property entities.
Commercial property news
Lend Lease Group
(ASX:LLC) has been awarded a design and construction contract worth about $208 million to redevelop a shopping centre in Perth. The Lakeside Joondalup centre will be transformed to a major regional shopping precinct that will include a new two level Myer department store. Lend Lease says the contract will expand its project management and construction business in the region. Construction is expected to commence this month with completion forecast in late 2014.
Mirvac Group
(ASX:MGR) confirmed its full year profit guidance at its annual meeting last week, but warned a recovery in the Queensland property market is still some time away. Chairman James MacKenzie says Mirvac takes a conservative approach to Queensland developments, and took a rigorous approach to testing the carrying values of its current assets given weak market conditions.
