The Reserve Bank of Australia has released a report saying that up to 90 per cent of the windfall from two years of rate cuts has been directed towards paying off mortgage debt ahead of schedule by home owners. The research shines some light on why retail spending remains so soft despite the central bank attempting to stimulate the economy through record low rates. Lenders give their customer the option of acting on rate cuts by either reducing monthly repayments to free up cash or paying back their loans more quickly.
The RBA’s report suggests that borrowers are favouring the latter option, with between 50 and 90 per cent of the savings from official rate cuts since late 2011 being directed toward building mortgage buffers as opposed to increased spending. The central bank says that in an environment where lending rates are falling, higher partial prepayments on mortgages act to reduce the rate of housing credit growth below what it otherwise would be. Estimates suggest that housing credit growth has been as much as 0.8 percentage points lower over the year to June as a result of increased prepayments. If lending rates remain the same, the peak effect of prepayments on housing credit growth is expected to hit 1 percentage point by the middle of next year. According to the analysis, the amount of total housing credit would have grown by roughly an extra $10 billion in the year to July if not for people paying off their debts more quickly.
Real Estate figures
The Reserve Bank of Australia has encouraged the nation’s lenders to maintain loan standards as record-low interest rates spur households’ investment appetite. The Central bank says its financial stability review that-
‘There are some signs that households are taking on more risk in their investment decisions, and it is important that banks do not respond to pressures to boost revenue by imprudently loosening their lending standards, or by making ill-considered moves into new markets or products.’’
Australian auction results
Looking at this week’s auction results across Australian capital cities - Sydney recorded a 86 per cent clearance rate from 363 properties for auction, Melbourne cleared 80 per cent from 553 properties, Brisbane had a 31 per cent clearance rate from 15 properties listed and Adelaide had just the 1 reported auction, which was cleared.
Commercial property sector
The latest headlines from the commercial property sector:
The battle for home loan lender RHG Limited
(ASX:RHG) is heating up with one of its suitor Resimac Limited and the Australian Mortgage Acquisition Company heading to Australia’s Takeovers Panel. The Resimac-led syndicate is hoping to stop a rival bid from RHG’s largest shareholder Cadence Capital Limited
(ASX:CDM) and Pepper Australia. Resimac claims Cadence Capital is conflicted as a 17.3 per cent shareholder and will benefit ahead of other RHG shareholders should its bid go through.
Stockland Corporation Limited
(ASX:SGP) will spend $222 million into its Wetherill Park shopping centre in western Sydney. The developer plans to expand the property by 15,000 square metres to give it a gross lettable area of more than 70,000 square metres. The Wetherill Park development includes a large entertainment and leisure complex including an upgraded 12-screen Hoyts, additional restaurants and a new 800-seat food court. The centre has two supermarkets, a Big W and a Target, and 200 specialty stores, with average rent of $11,150 per square metre. Chief executive of Stockland, Mark Steinert, forecast the redevelopment would provide 'strong financial returns, deliver growth in market share and recapture a portion of the estimated $600 million expenditure in this trade area.
Building manufacturer and property investor Brickworks Limited
(ASX:BKW) full year net profit has nearly doubled to $85.2 million. Normalised net profit after tax rose by 27 per cent to $100 million, compared with $78.9 million last year. Revenue rose nine per cent to $606.5 million. The company says it expects higher demand and an improved result in its building products division in the coming year. Managing Director Lindsay Partridge says the company’s property trust is likely to also see continued growth.
Property developer Sunland Group Limited
(ASX:SDG) has expanded its footprint in Brisbane through a $20 million purchase of the ABC’s former riverfront headquarters in Toowong. The national broadcaster abandoned the site in 2006 after 18 women who worked there between 1994 and 2006 developed breast cancer. However Managing Director Sahba Abedian says the group is confident in expert advice saying the site is safe, and anticipates commencing construction of a redevelopment next year.
Lend Lease Group
(ASX:LLC) has been given a green light to push ahead with a $500 million residential development in Armadale, Victoria. The Victorian Supreme Court dismissed an appeal by the Stonnington City Council, whose decision to block the development was initially quashed by the Victorian Civil and Adeministrative Tribunal. Lend Lease plans to develop 19 buildings at the site, compriso9ng 448 apartments and 18 townhouses.
