RBA Governor Glenn Stevens has voiced concerns about the current upward direction of property prices and encouraged future caution from banks and mortgage borrowers to not let housing costs go beyond the spending limitations of younger generations. Mr Stevens has spoken about the property market at a Citi Group investment conference in Sydney, urging lenders and borrowers alike advised to take due care in maintaining strong lending standards and to base decision making on sensible assumptions about future returns. The governor says the recent surge in house prices is effectively reversing earlier weaknesses, part of the normal cyclical dynamic.
According to Mr Stevens- “That’s what we need if we are to experience a long and sustainable expansion in housing investment that houses our growing population at acceptable cost.” Mr Stevens also touched on the recently hot topic of a potential housing bubble being created by the central bank’s record low interest rates, saying it remains too early to signal great concern about the property market as credit growth does not yet suggest that increased leverage was driving recent price gains. Mr Stevens says- “Credit growth at between four and five per cent per annum to households, and less than that for business, does not suggest that rising leverage is so far feeding the price rise.”
Despite this, Stevens acknowledged that growth was increasing quickly in some areas, namely Sydney, and that the bank would be paying close attention to credit growth moving forward. Mr Stevens highlighted the increasing amount of investors buying property in Sydney, and the link between this and a 40 per cent increase in finance approvals over the past year.
Real estate economic news
Total new home sales hit a two-year high in September, according to the Housing Industry Association. The HIA new home sales report recorded a 6.4 per cent lift in new home sales in September, the fastest monthly growth since April last year. The increase was underpinned by a 4.5 per cent rise in detached house sales and a 19.9 per cent jump in multi-unit sales, with low mortgage rates and an outlook for rising prices wooing more buyers.
Australian auction results
Looking at this week’s auction results across Australian capital cities - Sydney recorded a 83 per cent clearance rate from 459 properties for auction, Melbourne cleared 77 per cent from 959 properties, Brisbane had a 57 per cent clearance rate from 37 properties listed and Adelaide cleared 49 per cent from 39 reported auctions.
Commercial property sector
The latest headlines from the commercial property sector:
Property investor GPT Group
(ASX:GPT) has boosted its earnings guidance to at least 6 per cent earnings per share growth this year. The company also expects to maintain a distribution payout ratio of 80 per cent of realised operating income as it targets an extra $10 billion in funds under management. GPT Group says its core portfolio strategy is to remain diversified and strive for a flexible and tactical approach to sector weightings. CEO and Managing Director Michael Cameron says the funds under management target is ambitious but achievable with the company’s funds already having grown to $7.2 billion.
Lender Pepper has officially pulled out of the bid war over RHG Limited
(ASX:RHG), following a media release in which RHG confirmed it had reached agreement with the Resimac Syndicate on the key terms of a revised offer which included an increased cash offer to all RHG shareholders of 50.1 cents per share. Pepper CEO Patrick Tuttle announced the withdrawal, though not without a parting salvo. Mr Tuttle re-stated his belief that the Pepper and Cadence Capital Limited
(ASX:CDM) offer was snubbed despite its clear superiority, adding that over a period of nearly six weeks, the RHG board made no attempt to engage with Pepper in any ‘meaningful’ way. Mr Tuttle concluded that the only assumption the Pepper Syndicate can draw from the situation is that the RHG board was solely interested in doing business with the Resimac Syndicate. Co-group CEO Mike Culhane says Pepper is currently reviewing ‘a range’ of potential investments across both Australia and Europe.
FKP Property Group
(ASX:FKP) has announced a $232 million entitlement offer of new securities to its existing securityholders in order to pay down debt. In a statement to the Australian Securities Exchange, FKP said the offer price of $1.30 per new stapled security is a 36 per cent discount to the October 25 closing price. The proceeds will be used to de-lever and substantially extinguish all short-term debt maturities, improving the group's capital position, FKP said. FKP expects its gearing to fall from 31.5 per cent to 19.3 per cent on a pro-forma basis after the offer's completion. The group said the raising will help it accelerate its strategy of being a pure retirement developer, manager and owner.
