<section data-scroll-anchor="false" data-testid="conversation-turn-5" data-turn="user" data-turn-id="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" data-turn-id-container="e65dbe94-e3b6-47f7-b62a-9cbb30c9bf79" dir="auto">Time &amp; Place’s plans to transform the former David Jones factory building in Surry Hills into a mixed-use residential precinct have gone on exhibition through the NSW Government’s In-fill Affordable Housing pathway.</section>

<section data-scroll-anchor="false" data-testid="conversation-turn-6" data-turn="assistant" data-turn-id="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" data-turn-id-container="request-WEB:f4d533b7-64a5-413d-86fd-5c99649c2b73-2" dir="auto">
The Marlborough House proposal, lodged for the <a href="https://www.apartments.com.au/new-apartments/marlborough-house-47-97-marlborough-street-surry-hills-nsw-2010">47-97 Marlborough Street</a> site, would see the adaptive reuse of the heritage-listed warehouse building alongside the construction of new residential additions and a separate apartment building on the northern portion of the site.

The proposal seeks approval for 172 apartments across three buildings, including 15 per cent affordable housing managed by a community housing provider for at least 15 years from occupation.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="5d1d3c2a-bf13-47d6-a335-7c01102cdee1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.36%E2%80%AFAM.png?VersionId=cjMYrbR.BLUlWH4dar0RVDDo0bG.u2YT" />

Interior view from the Northern Building Penthouse overlooking the park

&nbsp;

The redevelopment is planned for the prominent 3,413 sqm site bounded by Marlborough Street, Goodlet Street and Lansdowne Street, directly opposite Eddie Ward Park and around 200 metres from the Surry Hills light rail stop.

Time &amp; Place acquired the former David Jones building in 2024, marking the first time the property had changed hands in around 50 years.

Designed by Wardle, the proposal centres around the adaptive reuse of the former David Jones factory, originally constructed between 1913 and 1935 in the Inter-War Chicagoesque architectural style.

Wardle noted in its Architectural Design Report that the building “occupies a significant place in the industrial and cultural history of Surry Hills” and at its peak was “the largest department store manufacturing facility in Australia, employing over 800 people and fuelling the growth of Sydney’s fashion and retail industries.”

The practice said the project positions itself “not as an isolated intervention, but as a contributor to the civic, social, and architectural grain of the precinct.”

The proposal would deliver 75 apartments within the retained southern heritage building, 59 apartments within the central addition, and a further 38 apartments within the new northern building fronting Lansdowne Street.

Planning documents show the scheme would comprise a mix of heritage apartments, new-build apartments, townhouses and penthouses.

<img alt="Marlborough" data-entity-type="file" data-entity-uuid="57758518-40a3-4b83-958c-d06e96a2cffa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.42%E2%80%AFAM.png?VersionId=VerlX9ST5xgBi8.1_YRsqdWTJeT6ygjs" />Interior View of the Heritage Building Apartment

The development would also include a ground-floor retail tenancy on the corner of Marlborough and Lansdowne streets, rooftop communal open space, a landscaped pedestrian link along the western edge of the site, and basement parking accessed from Lansdowne Street via a car stacker system.

&nbsp;

The scheme emerged from a competitive design process run by Urbis, with Wardle ultimately selected as the winning architect ahead of FJC Studio, TZG, Architectus and Wilkinson Eyre.

The Design Integrity Panel later described several aspects of the Wardle scheme as fundamental to the project, including “the stepped character of the new addition to the north of the site”, the landscaped western pedestrian link, and the “garden arrival” experience separating the original Marlborough House from the heritage addition.

Wardle’s design heavily references the site’s industrial and heritage history, while also responding to the surrounding Surry Hills streetscape.

The Architectural Design Report describes Surry Hills as “a finely grained neighbourhood with beautiful and expressive brickworks throughout the suburb,” with the proposal introducing a material palette intended to sit comfortably alongside the existing warehouse fabric and neighbouring terraces.

The report also outlines the project’s relationship with Eddie Ward Park and the broader landscape context of the area.

“Marlborough House occupies a site of deep cultural memory and the neighbouring Eddie Ward Park is of local ecological significance, where natural systems, topography, and stories have long shaped human experience,” Wardle noted in the report.

The architects said the proposal sought to “rebind built form to Country” through landscape, materiality and the adaptive reuse of the heritage structure.

<img alt="Marlborough House" data-entity-type="file" data-entity-uuid="9ae3f2f9-c85f-477a-a6f8-b43f6cb97c41" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.29.53%E2%80%AFAM.png?VersionId=B.qUCLqRvJOR.n9CvYcTpaknIX9LuqKZ" />

The project is also being progressed under the NSW Government’s in-fill affordable housing provisions, allowing developments that include affordable housing to access additional height and floor space incentives.

Under the plans, 2,593 sqm of the project’s floor space would be dedicated to affordable housing, slightly exceeding the required 15 per cent threshold.

In its Design Excellence Strategy, Urbis said the project aimed to “sensitively adapt and enhance the heritage-listed building on site through alterations and additions that preserve its historical significance” while delivering “high-quality market and infill affordable housing development in Surry Hills.”

Time &amp; Place has been one of the most active developers nationally in the last 12 to 24 months. Late last year they completed&nbsp;The Queensbridge in&nbsp;<a href="https://www.apartments.com.au/developments/southbank-vic-3006">Southbank</a>, a mixed-use tower with 353 apartments and a hotel. They are currently selling Park Modern, 246 apartments near the famous Botanic Gardens in&nbsp;<a href="https://www.apartments.com.au/developments/south-melbourne-vic-3205">South Melbourne</a>, and have future projects, <a href="https://www.apartments.com.au/new-apartments/the-wilmot-173-burke-road-28-hope-street-glen-iris-vic-3146">The Wilmot</a>&nbsp;in&nbsp;<a href="https://www.apartments.com.au/new-apartments/glen-iris-vic-3146">Glen Iris</a>, the redevelopment of the Northcote Plaza, and another tower in South Melbourne.

The developer broke into Sydney just a few years ago with Two Tides in Manly. They have another project nearby, which is at the ultra-luxury end of the market on&nbsp;<a href="https://www.apartments.com.au/buildings/shoreline-manly-beach-89-90-north-steyne-manly">North Steyne</a>, fronting the beach.

It is also continuing to work through the <a href="https://www.apartments.com.au/news/nsw/first-look-time-place-settles-on-design-for-the-chimes-potts-point-redevelopment">redevelopment of The Chimes building</a> on Macleay Street in&nbsp;<a href="https://www.apartments.com.au/developments/potts-point-nsw-2011">Potts Point</a>, as well as a project on <a href="https://www.apartments.com.au/news/nsw/time-place-to-take-on-mosman-apartment-market">Mosman's Redan Street</a>.
</section>

Joel Robinson

First look: Time & Place unveils Marlborough House redevelopment designs for former David Jones warehouse in Surry Hills

The residential transformation of St Kilda Road is set to continue into with more new apartment plans for the sought-after boulevard.

Wing Tai Asia has lodged plans for a major residential tower at 464-466 St Kilda Road, replacing the former VACC House with an 18-storey mixed-use development designed around a retained heritage podium and a sculpted contemporary tower.

The proposal, prepared under Victoria’s Significant Residential Development with Affordable Housing pathway, would deliver 325 apartments and ground-floor retail across the prominent 4,653 sqm boulevard site in Melbourne’s St Kilda Road North Precinct.

The project centres on the adaptive reuse of the site’s heritage-listed VACC Building, an eight-storey office designed by Bernard Evans that has occupied the address for decades. Planning documents state the development would involve “carefully dismantling and conserving off-site the original metal fabric of the podium visible from St Kilda Road,” before reinstating it as the defining frontage of the new scheme.

Above the restored podium, Wing Tai is proposing a curvilinear residential tower. The scheme includes 172 one-bedroom apartments, 63 two-bedroom apartments, 66 three-bedroom apartments, and 24 four-bedroom apartments, alongside two ground-floor food and beverage tenancies fronting St Kilda Road.

The tower has been designed with substantial articulation and variable setbacks to minimise perceived bulk and maintain view corridors along the boulevard. Urbis, which prepared the planning report, said the design “has been significantly articulated through a curvilinear design” with “an interplay with materials, façade expression and depth” to create visual separation and visual interest.

The proposal also includes 254 basement car spaces, landscaped pedestrian links connecting St Kilda Road and Queens Lane, and a biophilic landscape strategy featuring canopy trees, raised planters, cascading greenery and a glass oculus pool overlooking the eastern frontage.

Planning documents confirm the $270.1 million development will contribute 3 per cent of project costs to the Social Housing Growth Fund as part of the application process.

Wing Tai acquired the St Kilda Road property in 2018 alongside Abacus Property Group for $95.38 million, before later consolidating ownership of the site. The property previously served as the Victorian Automobile Chamber of Commerce headquarters for around 60 years.

The transformation of the St Kilda Rd boulevard is already beginning to materialise, with a number of high-profile projects recently completed, launched, or approaching launch as developers continue to back the long-term appeal of the precinct.

Among the most notable recent completions is Louise by Samuel Property Group, just off the strip on Queens Lane, the same pocket Hirsch &amp; Faigen recently launched The Queensbury. Mirvac is too on the same street with The Albertine, which is approaching completion.

Dexus recently secured approval for its slice of St Kilda Road, while Gurner also has approved plans for the precinct.

Wing Tai unveils 325-apartment St Kilda Road tower on former VACC House site

Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

APRA

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First application Loan-to-Valuation Ratio (LVR) Index from Veda and CoreLogic reveals improved financial security for Australian lenders.
<div>
The national average of application loan-to-valuation ratio (LVR) across Australia is currently tracking at 74.3%, according to the new Index from property data and analytics experts CoreLogic, and Veda, Australia and New Zealand’s leading provider of consumer and commercial data and insights and a wholly-owned subsidiary of Equifax. 
<h3>Application Loan-to-Valuation Ratio National</h3>
<a href="/images/2016/11/30/2016-11-04--loanvaluation--image2.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/30/2016-11-04--loanvaluation--image2.jpg" alt="">
Released tomorrow for the first time, the Index draws on the CoreLogic median dwelling values compared against the median residential loan application amount from Veda.  The result is a timely indicator of application loan-to-valuation ratios across Australia over time. 
The CoreLogic and Veda measure of application LVRs provides a geographically specific indication on mortgage leverage at a granular level at the time of application. 
While the current application LVR is 1.7 percentage points higher than in 2011 (72.6 percent), it is significantly lower than when it peaked in 2013, when the average application LVR was measured at 78.9 percent.
Moses Samaha, Veda’s General Manager of Commercial and Property Solutions, said the new Index would leverage Veda and CoreLogic’s data and insights to provide more detailed analysis of market conditions. 
“We are excited to be partnering with CoreLogic to offer more detailed insight into the housing market and level of leverage households are typically committing to,” Mr Samaha said. 
“In the past 12 months to September, we have seen the national median dwelling valuation rise 5.5% and the median residential loan enquiry amount rise 3.4%,” Mr Samaha added. 
Geographically, the application LVR trend is being driven downwards by higher equity levels and substantial household wealth across the premium housing markets of Australia, particularly in Melbourne and Sydney. However, Sydney has recently experienced an upswing in average application LVRs. 
<h3>Application Loan-to-Valuation Ratio Sydney Median</h3>
<a href="/images/2016/11/30/2016-11-04--loanvaluation--image1.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/30/2016-11-04--loanvaluation--image1.jpg" alt="">
“It’s common for capital cities with weaker housing market conditions to experience an increase in average application LVR. For example, Perth’s application LVR has jumped from 72.8 prcent to 77.1 percent in the past five years, sitting 2.8 percentage points above the national average,” Mr Samaha said.
<h3>Application Loan-to-Valuation Ratio Sept 2011 v Sept 2016</h3>
<a href="/images/2016/11/30/2016-11-04--loanvaluation--image4.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/11/30/2016-11-04--loanvaluation--image4.jpg" alt="">
“Sydney dwelling values have increased by almost 95% since the beginning of 2009 which has created a large amount of equity for those who have owned a dwelling during this time.  High equity is likely one of the key factors that has pushed application LVRs lower in Sydney and to a lesser extent, Melbourne,” Mr Samaha added. 
Average application LVRs in the other capital cities show mixed results. Application LVRs in Canberra and Hobart have leveled off recently on the back of improving housing market conditions. Brisbane has also seen the application LVR trend lower, reducing from a peak of 80.5% in October 2013 to the current reading of 77.7 percent. 
According to the Veda and CoreLogic findings, the trend towards lower application LVR estimates since 2013 can be attributed to a number of factors.  
The increasing volume of refinancing and mortgage top-ups for renovations or home extensions is likely to be a key factor driving application LVR measurements lower.  
First home buyers are also likely to be impacting the data. According to Australian Bureau of Statistics housing finance data, the number of first home buyers as a proportion of all owner-occupier housing finance commitments has declined from approximately 17 percent in early 2013 to a recent low of 12.9% in March 2016. First home buyers generally have smaller deposits and their lack of activity in the market may be pushing overall application LVR’s lower. 
Tim Lawless, Head of Research at CoreLogic Asia Pacific, said the level of application LVR is an indicator of prudent lending standards and financial stability. 
“Regulators and policy makers are likely to see the lower application LVR as a positive outcome, which is reflective of a more considered and prudent lending regime,” Mr Lawless said. 
“One of the factors contributing to lower application LVRs is the heightened risk assessment many lenders are applying to select housing markets, whereby larger deposits are required to offset higher lending risk.  
“Markets where dwelling values have shown substantial and rapid growth, where supply levels are high, or markets with disproportionate exposure to singular industries, such as mining towns, are typically being assessed by lenders as higher risk. Lenders in these markets are demanding lower LVRs to help minimise their own risk,” Mr Lawless added. 
The data from CoreLogic and Veda supports a similar trend in LVR reported by Australian Prudential Regulation Authority, which shows LVRs originating between 60 and 80 percent have comprised a larger proportion of lending.
Tim Lawless is head of the CoreLogic research and analytics team and can be contacted <a href="https://blog.corelogic.com.au/author/timlawless/" target="_blank">here</a>.
</div>
</body></html>

tlawless-5VLUrbAk9s

Loan-to-Valuation Ratios level out after trending lower since 2013: Tim Lawless

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Residential mortgage lending constitutes the largest credit exposure in the Australian banking system and, for many ADIs, well over half their total credit exposures.
This concentration of exposure necessitates APRA’s close scrutiny of ADIs’ lending practices.
In November 2014, APRA released Prudential Practice Guide APG 223 Residential Mortgage Lending (APG 223) to provide guidance to ADIs on sound risk management practices for residential mortgage lending.
APG 223 outlines prudent practices in areas, such as sound loan origination criteria, appropriate security valuation methods, the management of problem loans, and monitoring relevant risk data. APRA is currently consulting on updates to APG 223, as outlined on the APRA website.
ADIs currently report residential mortgage lending data to APRA on reporting forms under the Financial Sector (Collection of Data) Act 2001 (FSCOD Act), and in response to ad hoc information requests pursuant to APRA’s general powers under the APRA Act.
One key source of information is Reporting Standard ARS 320.8 Housing Loan Reconciliation (ARS 320.8), made under the FSCOD Act.
This reporting standard requires ADIs with more than $1 billion in residential term loans to report 99 data items each quarter on Reporting Form ARF 320.8 Housing Loan Reconciliation (ARF 320.8), using the Direct-to-APRA (D2A) reporting software each quarter.
ADIs must report information on ARF 320.8 on their housing lending activity, including information on loan purpose (either owner-occupied or investment loans), balances of existing loans, new
loan approvals and features of loans. ARF 320.8 collects this information on loans on the domestic books for banks and licensed books for non-bank ADIs.
ARF 320.8 was introduced in 2008 and has not been updated since then. There is now a significant gap in APRA’s ability to monitor the credit risk and lending practices of ADIs. Only 31 of the 109 locally incorporated ADIs are required to submit ARF 320.8.
Many of the loan characteristics that are factors for assessing credit risk (as outlined in APG 223) are not covered, such as portfolio loan-to-valuation ratio LVR breakdowns, loan performance, security type and borrower serviceability.
ADIs report loans only on a domestic books basis and exclude certain types of borrowers under ARS 320.8, such as non-resident households, household trusts and self-managed superannuation funds (SMSFs), meaning some relevant lending activity is not captured.
Furthermore, some of the data items reported on ARF 320.8 are no longer relevant to APRA’s supervisory needs.
These information gaps in the D2A reporting mean APRA must request additional information on residential mortgage lending to undertake meaningful analysis for individual ADIs and the ADI industry as a whole.
The additional data received are not subject to APRA’s formal data quality assurance processes, they are not stored in APRA’s centralised data warehouse and may not be of publishable quality.
These ad hoc requests can impose an increased regulatory burden on entities. Due to their variable scope and requirements, it can be difficult for ADIs to allocate resources and provide ongoing quality assurance.
Some ADIs have informally expressed a preference for reporting requirements to be collected through D2A wherever possible, and for all reporting requirements to include a clear statement of purpose and instructions.
ARF 320.8 is due 20 business days after each reference quarter. The Reserve Bank of Australia (RBA) also uses data reported on ARF 320.8 in the development of policies to promote financial stability, and to monitor the transmission of monetary policy.
ADIs currently report information on the balance on loans that are impaired or past-due in Reporting Form ARF 220.0 Impaired Facilities. This does not include any loan characteristics other than a split between owner-occupied and investor.
ADIs using the Standardised Approach to calculating credit risk capital requirements also report some information about residential mortgage lending on Reporting Form ARF 112.1A Standardised credit risk - On-balance sheet assets, ARF 112.2A Standardised credit risk - Off-balance sheet exposures, while ADIs using the internal- ratings based (IRB) approach report some information on and ARF 113.3A IRB Retail – Residential mortgages. Only limited detail on characteristics of the loans is reported on these forms.
To better enable APRA’s supervisory monitoring and oversight of residential mortgage lending, and reduce the reliance on ad hoc information requests, APRA proposes to introduce a new reporting standard under the FSCOD Act, Reporting Standard ARS 223.0 Residential Mortgage Lending (ARS 223), and a new form, Reporting Form ARF 223.0 Residential Mortgage Lending (ARF 223.0).
These changes will enable APRA to maintain its supervisory intensity of residential mortgage lending and address emerging risks, while removing some unnecessary reporting burden on ADIs.
All locally incorporated ADIs will be subject to ARS 223.0 and required to submit ARF 223.0, 28 calendar days after the end of each calendar quarter.
While smaller ADIs are currently not required to submit ARF 320.8, residential mortgage portfolios typically make up the majority of their balance sheet.
Comprehensive supervisory monitoring of the credit risk of these ADIs is therefore dependent on obtaining information about their residential mortgage lending.
APRA expects that much of this information will already be available by ADIs for their own internal monitoring purposes.
ARF 223.0 will collect information on both the portfolio stock and the new lending activity each quarter. ADIs with a Level 2 group will need to complete ARF 223.0 on a Level 2 basis, and other ADIs on a Level 1 basis.
Depending on their level of residential mortgage lending activity in Australia, branches of foreign banks may also be required to submit ARF 223.0 each quarter, as directed by APRA.
The proposed reporting standard, form and reporting instructions are available on the APRA website.
In order to accurately assess the risk profile of the residential mortgage loan portfolio of an ADI or the industry as a whole, APRA needs to have relatively detailed information on residential mortgage loan portfolios.
ADIs currently report outstanding loan balances to households and some loan characteristics on ARF 320.8, split by purpose of the loan. ADIs currently report the balance on impaired or past-due loans in ARF 220.0, split between owner-occupied and investor loans with no further detail.
The proposed ARF 223.0 will capture loans to households as well as borrowers which have similar risk profiles to households, such as loans to family trusts and SMSFs and to non-residents.
ADIs will be required to report new information including: facility limits; a more detailed breakdown by LVRs; loan vintage; loans subject to lenders mortgage insurance; loans secured by property overseas; and loans secured by a unit or apartment.
The definitions used in ARF 223.0 have been streamlined to better align with ADIs’ own internal information management systems.
For example, the definitions of an owner-occupied loan and an investor loan have been updated. These changes should make it easier to report and therefore reduce the ongoing reporting burden.
More detail about problem loans will be required than is currently reported on ARF 220.0.
ADIs will be required to report past-due loans according to risk characteristics (such as loan type, origination channel and LVR), mortgage loans with hardship arrangements, mortgagee in possession loans, loans less than 90 days past due and new non- performing loans in the quarter.
In addition to portfolio metrics, information on the risk profile of new loans is essential for analysis of ADIs’ credit risk.
ADIs currently report limited information on new loan approvals on ARF 320.8, including breakdowns on purpose, some loan features and LVRs. Revolving credit is not captured on ARF 320.8.
ARF 223.0 will require ADIs to report loans originated during the quarter, rather than loans approved, as this is a better and more reliable measure of loans affecting an ADI’s risk profile.
Details on new loan originated to trusts operated by households, such as family trusts and SMSFs, will be included in reporting, as well as loans to non-residents. Originations of revolving credit facilities will also be reported.
ADIs will be required to report more detailed data on loans originated during the quarter than is required on ARF 320.8, including information on borrowers, loan-to-income ratios, collateral type and location and a more granular breakdown by LVR.
Most of the existing detail on loan approvals reported on ARF 320.8 will continue to be reported for originations on ARF 223.0, such as loan purpose and loan features.
ADIs will also be required to report information on the average variable interest rate and average loan serviceability assessment rate of loans originated during the quarter. These data will be used to analyse changes in serviceability parameters.
APRA’s needs for regular statistics on mortgage lending activity will be largely met by the proposed ARF 223.0.
However, the RBA relies on the information reported on ARF 320.8 to perform its role.
The RBA will become the primary user of ARF 320.8 and has requested that APRA continue to collect the form on its behalf from ADIs with over $1 billion of residential mortgage term loans each quarter.
The RBA is currently reviewing ARF 320.8 and intends to consult ADIs on revised reporting requirements in late-2016. Both APRA and the RBA are working together to minimise reporting burden by limiting the overlap between collections, and by streamlining concepts and definitions.
After considering the feedback received in response to the discussion paper, APRA expects to issue a response paper and finalise the content and format of ARS 223.0 in the first half of 2017. The new reporting requirements would commence for the quarter ending 31 December 2017.
To improve the quality of regulation, the Australian Government requires all proposals to undergo a preliminary assessment to establish whether it is likely that there will be business compliance costs. In order to perform a comprehensive cost-benefit analysis, APRA welcomes information from interested parties.
As part of the consultation process, APRA requests respondents to provide an assessment of the impact of the proposed changes and, specifically, the marginal compliance costs ADIs are likely to face.
Given that APRA’s proposed reporting requirements may impose some compliance costs, respondents may also indicate whether there are any other requirements relating to ADI reporting that should be improved or removed to reduce compliance costs. In doing so, please explain what they are and why they need to be improved or removed.
APRA also requests feedback on the proposed reporting requirements, the extension of reporting on residential mortgage lending to ADIs with less than $1 billion in residential mortgage loans, and the ability of ADIs’ data source systems to align to the concepts and definitions in the proposed data requirements.
APRA welcomes any suggestions for changes to definitions that will improve data quality and reduce reporting burden.
Specifically, APRA seeks feedback on the proposed definitions in the reporting instructions for owner-occupied loans, investor loans, household trusts and newly originated loans.
The proposed reporting requirements, like all reporting requirements under the FSCOD Act, will utilise XBRL (eXtensible Business Reporting Language) and the Standard Business Reporting (SBR) taxonomy.
ADIs that use XBRL and the SBR taxonomy to map or tag their financial information can streamline their reporting processes and reduce the manual intervention required.
There are several concepts on the proposed form that overlap those of other APRA reporting, allowing for the re-use of existing SBR taxonomy tagging on source data systems.
APRA requests feedback on the cost incurred in responding to past information requests regarding residential mortgage lending.
APRA expects the introduction of ARF 223.0 to reduce the frequency and detail of these requests for the majority of ADIs.
Feedback on compliance costs under the proposed changes can be provided to APRA using the template for costings available on the APRA website <a href="https://www.apra.gov.au/adi/Documents/Template-for-%20cost-savings-2015.xlsx" target="_blank">here</a>
The template is designed to capture the relevant costs in a structured way, including a separate assessment of upfront costs and ongoing costs.
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j.ballantyne1990-6AQqhLzZaK

Property 101: APRA's residential mortgage lending reporting requirements

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APRA has released updated governance requirements for APRA-regulated superannuation trustees with a revised prudential standard and prudential practice guide on governance. 
The amendments to the prudential standard include requiring RSE licensees to have in place a governance framework, requirements for these policies to address the nomination, appointment and removal of directors, board renewal, director tenure limits and board size. 
The prudential practice guide has been updated to clarify APRA’s expectations regarding key governance practices, to support the new requirements set out in the prudential standard. 
Helen Rowell, APRA deputy chairman said APRA places significant importance on sound governance of the superannuation industry, and these refinements to the prudential framework support the ongoing evolution of governance practices across the superannuation industry.
Final SPS 510 will take effect on 1 July 2017, but APRA expects RSE licensees to consider the guidance in SPG 510 immediately.  
Further details of the requirements, including the final prudential standard and prudential practice guide can be found <a href="https://www.apra.gov.au/Super/Pages/Governance-arrangements-August-2015.aspx" target="_blank">here</a>.
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jonathanchancellor-7SQnKwU6yx

Property 101: APRA releases enhanced governance requirements for superannuation trustees

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The Australian Prudential Regulation Authority (APRA) has released for consultation revisions to Prudential Practice Guide APG 223 Residential mortgage lending to incorporate measures either announced by APRA in December 2014 or communicated to authorised deposit-taking institutions (ADIs) since.
APRA’s proposal to increase the monitoring of risk and lending practices should ensure the highest professional standards and independence of the valuation process for residential mortgages, according to the leading valuation professional bodies, the Australian Property Institute (API) and the Royal Institution of Chartered Surveyors (RICS).
The market expects that valuations are reliable, independent and authoritative. 
Both the API and RICS accredit professionals and require them to follow International Valuation Standards in the preparation of valuation advice to Authorised Deposit-taking Institutes (ADIs). 
We call on APRA to ensure that any changes made to valuation practices are not inconsistent with international standards.
The two organisations share a strong preference for a full on-site valuation, which includes a physical inspection and all relevant enquiries being undertaken. 
A physical inspection is considered a must and should be sufficiently comprehensive to enable valuer to complete their report in accordance with accepted valuation practice.
Lesser forms of value assessments such as a ‘drive-by’ which has an external inspection only and with very limited enquiries or a ‘Desktop Assessment’ which has no physical inspection, no formal enquiries and limited reporting carry greater risk and should only be adopted in very low-risk circumstances.
We also support the proposal confirming that the ADI’s risk management teams, rather than the procurement or panel management staff, should make determinations regarding risk management and the appointment of suitably qualified, professional and accredited valuers.
The API and RICS work closely with the finance industry, which requires that their Panels are comprised of API and RICS qualified valuer members.
The API and RICS are supportive of all measures, which enshrine the independence of the valuer in the residential mortgage process and the valuation process generally. 
Additionally, sound risk management practices by the banks will assist in ensuring that valuations are undertaken in accordance with both International and Australian valuation standards, as prescribed by both the API and RICS. 
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Property 101: APRA revisions to Prudential Practice Guide APG 223 Residential mortgage lending

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<div>
The idea the SMSF sector is largely unregulated is a myth according to SMSF Association head of policy Jordan George, who said the fact self-managed super funds (SMSFs) don’t come under APRA’s regulatory umbrella often gives this false impression.
He said the SMSF sector is rigorously regulated by two key Government agencies: the Australian Taxation Office (ATO), which administers the relevant superannuation laws for SMSFs, and the Australian Securities &amp; Investments Commission (ASIC), which regulates financial services to protect consumers and registers SMSF auditors. 
The ATO is the key regulator for the SMSF sector. Its role includes: 
·       Verifying that a fund’s primary purpose is to pay retirement benefits to members;
·       Providing information and forms to assist trustees set up and manage a fund;
·       Checking that funds are compliant with the superannuation laws;
·       Taking enforcement action when the laws are breached;
·       Ensuring SMSF auditors perform their duties to the required standard.
"The ATO has proved a highly effective regulator," he said. 
"The evidence for this is the high compliance rate among SMSFs, with 98 percent of funds annually meeting their obligations under the superannuation laws.
"ASIC’s prime responsibility is to ensure that all SMSFauditors are registered, as well as meeting other eligibility requirements, including holding a tertiary accounting qualification or equivalent, meeting a fit and proper test, and holding professional indemnity insurance.
"The “unregulated or lack of regulation” myth that continues to pervade SMSFs flies in the face of the findings of the Cooper and Murray inquiries, both of which gave the sector a clean bill of health.
“Leaving aside Murray’s recommendation to ban LRBAs, neither inquiry found there was any systemic issue threatening the viability of the SMSF sector – further evidence that the regulatory regime is working effectively.”
 
</div>
<div> </div>
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Property 101: SMSFs and APRA’s regulatory umbrella

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APRA has told banks they should make sure new borrowers can repay their debts with mortgage rates of at least 7 percent.
The foreshadowed guidelines have confirmed already widely followed practice across bank mortgage lending.
The Australian Prudential Regulation Authority updated its industry guidance to ensure banks are "prudent" in managing risks in the $1.5 trillion mortgage market.
APRA is now being more specific in demanding minimum interest rates banks must use when approving customers for home loans.
It continues the crackdown commenced in late 2014.
While the banks advertise home loan interest rates well below 4 percent for new customers, APRA said a "prudent" bank would have an internal assessment rate of at least 7 percent.
APRA is also seeking banks must "scale" their cost of living indexes according to a borrower's income.
For instance, it says that even if a borrower does not have housing costs because they live with their parents, banks should still make a "reasonable estimate" of what their housing costs would be if they had to pay for housing.
The policy also specifies the minimum "haircuts" banks should make to non-salary income.
It says banks should apply a haircut of at least 20 per cent to non-salary forms of income – including bonuses, overtime, or rent from investment properties – when they are assessing a loan application.
The Australian Prudential Regulation Authority released for consultation revisions to Prudential Practice Guide APG 223 Residential mortgage lending to incorporate measures either announced by APRA in December 2014 or communicated to authorised deposit-taking institutions (ADIs) since that time.
APRA has also released for consultation with ADIs proposed new reporting requirements for residential mortgage lending data.
APRA does not expect the revisions to APG 223 to result in material changes to existing lending practices for ADIs.
The revised APG 223 does include more detailed guidance on the following areas:
<ul>
<li>quantitative serviceability parameters including the application of interest rate buffers and floors,</li>
<li>haircuts for non-salary income such as rental income,</li>
<li>treatment of interest-only loans and estimation of living expenses; and</li>
</ul>
other qualitative measures including meeting responsible lending obligations, monitoring serviceability policy overrides, and treatment of self-managed superannuation fund loans and other specific loan types.
Released on 5 November 2014, APG 223 summarises APRA’s expectations for sound residential lending practices, including guidance on addressing housing loan credit risk within an ADI’s risk management framework and applying sound loan origination criteria, verification procedures and security valuation methods, among other things. 
On 9 December 2014 APRA announced further steps to reinforce sound residential mortgage lending practices — the revisions to APG 223 incorporate the serviceability requirements that were announced in December 2014 and reflect APRA’s supervisory experience in the subsequent period.
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jchancellor-FAypfDUnLy

APRA tightens home loan lending policy including cost of living calculations

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<img src="https://counter.theconversation.edu.au/content/67693/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Australian Prudential Regulation Authority (APRA) has moved away from its non-prescriptive “principles based” regulatory approach to a one size fits all explicit guidance but it doesn’t appear to be encouraging lenders to be more prudent. 
The housing market may be getting away from APRA and the Reserve Bank of Australia (RBA). In late 2015, both regulators voiced concerns about the “horribly low” standards of the mortgage lending sector and the risks to financial stability. Even bankers are getting jittery.
There has also been well-publicised problems with brokers originating dodgy mortgages that lenders have not picked up. In its existing guidance (which has not been changed in the latest version), APRA requires lenders to have all sorts of procedures to catch dodgy mortgage applications from brokers including procedures to verify the accuracy and completeness of provided information.
But APRA has not named and shamed the lenders who failed to catch dodgy mortgage applications, not imposed capital sanctions or reprimanded directors and management. It hasn’t required that lenders change their broker process.
What APRA is asking is that banks slug first time buyers even more. In the new rules, home buyers are now required to prove they can service a 7 percent mortgage interest rate on a loan to value ratio of less than 90 percent with less income being taken into account. This is on top of trying to save a deposit that is disappearing every day as house prices boom.
It is going to take a lot more than forgoing a few smashed avocado toasts to make up for the additional burden imposed by APRA.
There are a few important questions raised by APRA’s sudden conversion to pragmatic rather than purely principled regulation.
First, the numbers. Where did the 7 percent come from? APRA doesn’t disclose this, but in an era of almost zero interest rates, it’s big. And maybe in time, when the RBA announces its changes to interest rates, the 7 percent may be changed in-line and economists will begin to bet on whether it will go to 6.5 percent or 7.5 percent. 
In looking at a borrower’s income, APRA notes that it is “prudent practice is to apply discounts of at least 20 percent on most types of non-salary income”. No explanation also on why this particular percent. It’s also not specific on what “most” means.
If banks are indeed lending imprudently surely the banks themselves should suffer. First by naming and shaming, then if necessary, requiring additional capital buffers, thus driving down dividends – a real market based solution.
<h2>APRA is changing the way it regulates</h2>
Throughout the turmoil of the global financial crisis and the regulatory mayhem that followed, APRA held fast to its “principles based” approachto regulation:
"To be principles-based is to give emphasis to the achievement of sound prudential outcomes in setting regulatory requirements and expectations, without necessarily seeking to specify or prescribe the exact manner in which those outcomes must be achieved."
In short, APRA lays out the high-level principles that it will use to supervise the banks and insurance companies that is responsible for, and then will check that those principles are being adhered to. It did not believe in a “one size fits all” approach.
But this week, there appears to have been a back-flip. In a consultation paper for an update to APRA’s guidance on mortgage lending, the regulator has been very specific indeed. It notes:
“Prudent serviceability policies should incorporate a minimum floor assessment interest rate of at least seven percent.” 
This very specific guidance replaces an earlier guidance that was more general. From a regulatory perspective, an important question is why abandon principles-based regulation? If it hasn’t worked in the past, then a rethink of the role and approach of prudential regulation is needed. 
This has happened overseas, where the UK Financial Conduct Authority, while retaining 11 principles that firms should adhere to, has become much more intrusive. Unlike our regulators, the authority has even going so far as to impose massive fines for misconduct. It states:
“We also adopt a markets-focused approach to regulation, both in our work as a competition regulator and more broadly to deliver regulation that works with the market to improve consumer outcomes. Interventions at the market level are an effective and powerful way of tackling and mitigating problems across a large number of firms, which in turn benefits a large number of consumers.”
Rather than APRA slipping in such a major change like this latest one into a consultation paper, it might be appropriate to have a transparent debate about such a potentially significant change in prudential regulation in Australia.
<div class="hover tooltip bottom">Pat McConnell is honorary fellow, Macquarie University Applied Finance Centre, Macquarie University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/pat-mcconnell-13137" target="_blank">here</a>.</div>
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New APRA guidance on lending will hurt home owners when it should be the banks

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Speech from APRA Chairman Wayne Byres before before Senate Economics Legislation Committee, Canberra
Earlier this week, APRA published an information paper on risk culture - a topic that we have given greater attention to over the past few years. The paper focusses, amongst other things, on how Boards of regulated institutions have gone about the task of assessing the risk culture within their organisations, given the introduction of specific prudential requirements in this area from January 2015.
Assessing risk culture is no easy task. But, as the global financial crisis showed, if an organisation has a poor attitude to risk-taking and risk management, it can ultimately threaten an institution’s financial viability. So one of our key messages is the need for continued investment of time and attention by senior leaders on this issue.
Just as regulated institutions will refine and improve their own practices, we will continue to refine our approach and methodologies for making assessments of risk culture within regulated institutions. We will also, in particular, be looking more closely at the influence of remuneration arrangements on that culture.
As the Committee knows well, there have been some serious allegations of inappropriate and unfair treatment of life insurance claimants by The Colonial Mutual Life Assurance Society Limited, trading as CommInsure. While ASIC has been dealing with the specific customer cases, APRA takes an interest in what these cases tell us about the strength of an institution’s governance, risk management and risk culture.
Our work with CommInsure has targeted two main issues. First, APRA has engaged with the Board and senior management of CommInsure to gain assurance over the robustness and completeness of the independent reviews commissioned to investigate the allegations, and ensure to stakeholder and community expectations are considered through this process. We have also met with the whistleblower who brought the issues to light, and are considering whether the whistleblowing provisions in the Life Insurance Act designed to prevent the identification and victimisation of whistleblowers have been adhered to.
Earlier this year, APRA also wrote to the Boards of all active life insurers, as well as to a selection of superannuation trustees, seeking information on the effectiveness of their governance and oversight mechanisms for matters such as claims handling, benefit definitions, rejected claims and customer complaints. Based on the responses received, we issued a report last week identifying areas in which insurers and trustees can improve their management of life insurance claims.
APRA and ASIC have been working closely on all of these matters, which remain ongoing.
Finally, our supervisory work on housing lending standards continues. Given the environment of heightened risks, our objective has been to reinforce sound lending standards, particularly in relation to the manner in which lenders assess the capacity of borrowers to service their loans. Over the past year, we believe the industry has appreciably improved its lending standards. But risks within the housing and residential development markets remain elevated. We are therefore giving thought to how best to have improved standards firmly embedded into industry practice, such that they are not eroded away again over time.
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Risks within the housing and residential development markets remain elevated: Wayne Byres

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APRA chairman Wayne Byres' Opening Statement to the House of Representatives Standing Committee on Economics
This is a hearing into APRA’s 2015 Annual Report, which I hope provides a clear and transparent account of our activities. But since many issues discussed in that Report continue to have currency, and the Committee will also want to discuss more contemporary issues, I plan to use my opening remarks to provide an update on a few key areas of APRA’s work since that report was published. More detail will, of course, be provided in our 2016 Annual Report, which will be tabled shortly.
Regulatory framework
APRA’s regulatory agenda in 2016 has been heavily influenced by the recommendations of the Financial System Inquiry (FSI). In particular, we continue to improve the resilience of the banking system to adversity, building on the lessons learned from the financial crisis. In our bailiwick, this has included measures to strengthen bank capital, bolster the stability of bank funding, and facilitate a simpler and more resilient securitisation market. 
All of these initiatives are designed to improve the resilience of banking institutions. But even with more resilience, preparing for a possible crisis involving one or more regulated institutions with serious threats to their immediate viability is also a wise investment. We therefore welcomed the Treasurer’s recent commitment to pursue proposed legislative improvements to the statutory toolkit for crisis management, as recommended by the FSI, as a matter of priority. We would also appreciate this Committee’s support when these proposals come before the Parliament. 
Housing lending standards 
Our supervisory work on housing lending standards has remained a high priority in 2016. There is no shortage of competition for the business of home loan borrowers, but we are keen to see the industry’s competitive instincts directed towards pricing, product features and customer service, rather than pursuing market share by reducing the quality of loans written. Therefore, the goal of our recent work has been to reinforce – and in some areas improve - sound lending standards for housing, particularly in relation to the manner in which lenders assess the capacity of borrowers to service their loans.
In response to our attention, we believe the industry has appreciably improved its lending standards: for example, all material lenders are now assessing borrower serviceability using interest rate buffers of at least 2 percent, and a minimum rate of at least 7 pe cent, and some of the overly generous assumptions in affordability models have been tightened up. We continue to monitor the evolving risks in the property market, and are working to have improved standards firmly embedded into industry practice, so they are not eroded away over time. 
Risk culture
For the past couple of years, we have given greater attention to the risk culture within regulated institutions. Risk culture is, in simple terms, the way in which the organisation’s culture shapes its attitude to risk-taking and risk management. Assessing risk culture is no easy task. But if an organisation has a poor attitude to risk-taking and risk management, it can ultimately threaten an institution’s financial viability. We saw examples of poor risk culture at the heart of many failures that occurred internationally during the GFC; before that, the demise of HIH Insurance was an example closer to home.
It is important to note that prudential and conduct regulators – that is, APRA and ASIC – both have a legitimate interest in the culture within financial institutions, but that our respective interests stem from different underlying objectives. ASIC's focus on culture is from the perspective of ensuring fair outcomes for customers and investors. APRA’s focus on risk culture reflects our prudential mandate - that as a result of undesirable behaviours and attitudes towards risk-taking and risk management, the viability of an APRA-regulated institution itself - and in severe cases, financial stability – might be threatened. While we start with different objectives, our shared interest means APRA and ASIC need to work collaboratively on culture-related matters - and we are doing that. 
APRA’s work over the past year or so has focussed on how Boards assess the risk culture within their organisation, given the introduction of specific prudential requirements in this area from January 2015. We will very shortly publish an information paper on industry activity in relation to understanding and assessing risk culture. In the year ahead, we will continue to refine our approach and methodologies for making assessments of risk culture within regulated institutions, and be looking more closely at the influence of remuneration arrangements on that culture. 
Life insurance claims review
As the Committee knows well, there have been serious allegations of inappropriate and unfair treatment of a number of claimants by The Colonial Mutual Life Assurance Society Limited, trading as CommInsure. While ASIC is dealing with specific customer cases, APRA takes a close interest in such matters, given they can provide important insights into the strength of an institution’s governance, risk management and risk culture. Therefore, working alongside ASIC, we commenced three streams of work:
<ul>
<li>We engaged with the Board and senior management of CommInsure to gain assurance over the robustness and completeness of the independent reviews commissioned to investigate the allegations, and to ensure a focus on stakeholder and community expectations through this process.</li>
<li>We met with the whistleblower that brought the CommInsure matters to public attention, and are considering whether the whistleblowing provisions in the Life Insurance Act 1995, which are designed to prevent the identification and victimisation of whistleblowers, have been adhered to in this matter. </li>
<li>We wrote to the Boards of all active life insurers to seek information about the effectiveness of their governance and oversight mechanisms for matters such as claims handling, benefit definitions, rejected claims and customer complaints. We similarly wrote to a selection of superannuation trustees, as some of the claimants that had experienced unacceptable outcomes were members of group risk schemes via their superannuation funds. Summaries of the key themes from APRA’s analysis of responses to these information requests were released earlier this week.</li>
</ul>
Our work in each of these streams is ongoing.
Concluding remarks
Underlying all of the work I have just spoken about is our firm conviction that a strong, stable and competitive financial sector is essential for the ongoing prosperity of the Australian community.
Importantly, we do not see enhanced safety as necessarily requiring a trade-off with competition. Rather, the two are complementary since only sound financial institutions will be able to support their customers – both existing and new – through good times and bad. Australia needs regulated institutions that make an adequate return for their owners such that they remain attractive to new investment, while at the same time providing products and services to their customers that offer value for money and perform consistently with expectations.
Business models and products that only support the community when times are good do not provide the lasting benefits of competition. Put simply, only sound institutions operating with the interests of their full range of stakeholders in mind, and with a long term perspective, are able to provide real and sustainable service to the community. Through our activities, we hope we are helping to shape the financial system in that direction.
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Industry reacting to APRA's influence on housing loan lending standards: Wayne Byres

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At the end of 2014, the Australian Prudential Regulation Authority (APRA) wrote to mortgage lenders reinforcing what they saw as sound mortgage lending practices. 
The key points from that letter were that serviceability policy limits should be based on mortgage rates at least 2 percent above the product loan rate with a minimum floor assessment of 7 percent. 
The second point was that APRA was going to impose a speed limit on investment credit growth to lenders of 10 percent per annum. It is important to note investment credit refers to total outstanding mortgages not new lending.
The impact of these policies was likely to be that as interest rates fell, more buyers weren’t encouraged into the market because mortgages were being granted based on the ability to repay a mortgage at 7 percent interest which was well above standard rates at that time.  The other impact was that the 10% cap on investor housing credit growth would slow demand from the investment segment as there was less new lending to go around.
While the serviceability limits mean that new first time buyers are unlikely to come into the market as interest rates fall, it does nothing to discourage current owners from buying investment properties or upgrading homes.  Given that the vast majority of home loans are on a variable rate, interest rate cuts have an almost immediate impact on household budgets. 
While the serviceability limits won’t result in marginal purchasers entering the market, as interest rates have come down it appears that home owners that weren’t previously considering buying an investment property or upgrading have come out of the woodwork and decided to purchase.
<a href="/images/2016/09/21/Chart-1-1-580x176.jpg" target="_blank">Click to enlarge</a>
 <img src="/images/2016/09/21/Chart-1-1-580x176.jpg" alt="">
It is somewhat difficult to gauge exactly how effective the serviceability changes have been, but the 10% cap on investor housing credit led to a significant decline in growth in lending to that market segment.  Shortly following the implementation of the investor lending cap we also saw lenders place an interest rate premium on investment mortgages.  This muddied the waters somewhat because a lot of mortgages which were previously designated as investment mortgages were reclassified as owner occupier mortgages. 
Nevertheless, annual investor housing credit growth peaked at 10.8 percent in May 2015 according to Reserve Bank data and the latest data shows that it has slowed to growth of 4.8% over the year to July 2016.  Investor housing credit growth has slowed dramatically since its recent peak following these curbs and over the past year has increased at its slowest annual pace since November 2009.
<a href="/images/2016/09/21/Chart-2-1-580x210.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/21/Chart-2-1-580x210.jpg" alt="">
Housing finance data which tracks new lending, has showed a bounce in new lending to investors over the three months to July 2016.  Over that period, the monthly value of investment lending has increased by 9.2 percent from $10.8 billion in April 2016 to $11.8 billion in July 2016, new lending to investors is at its highest level since August 2015.  With investor housing credit growth well below 10 percent per annum, it is clear that lenders have scope to now offer more lending to the investment segment and clearly there are investors grabbing that opportunity.  
But why is this the case when you have a record supply of new housing under construction, record low rental yields and a historically weak rental market? We are about to delve into some possible reasons why, for some investors, housing investment still makes sense however, investors looking to purchase residential properties should be aware of the potential risks on the horizon.
Capital growth
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<img src="/images/2016/09/21/Chart-3-1-580x211.jpg" alt="">
Since the current growth phase commenced in June 2012, combined capital city home values have increased by 39.9%.  As the above chart shows, the growth has been very uneven with Sydney and Melbourne leading the way in terms of value growth and rises relatively moderate elsewhere.  After such a long growth phase, the question must be asked as to how much longer the growth can continue for in Sydney and Melbourne, particularly considering the affordably obstacles that are becoming more pronounced and the diminishing yield profile caused by the fact that dwelling values are rising at a much faster pace than rents.
Housing supply
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The supply of new housing under construction is at a record-high with an historic high level of units under construction.  The 2011 national Census showed that units were much more likely to be occupied by renters than houses.  At that time, and across homes occupied on Census night, 21.8 percent of houses and 57.8% of units were occupied by renters. 
Of course housing choices are likely to have shifted somewhat since that time but the fact is likely to remain that units are much more likely to end up as rental accommodation than houses are.  As a result a large proportion of these units recently built and under construction will end up as rental accommodation.  In many cities we are also already seeing a significant difference in the rate of growth for houses as opposed to units.
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Rental markets are showing the weakest growth conditions on record, in fact, capital city rental rates are -0.5 percent lower over the past year.  In the two cities where the highest level of investment activity is occurring, Sydney and Melbourne, rents are unchanged in Sydney and 2.4 percent higher in Melbourne.  For units specifically, rental rates are 0.7 percent higher over the year across the combined capital cities with rental rates 1.8 percent higher for Sydney units and 1.3 percent higher for Melbourne units.
There is a large supply of housing stock that is going to be added to the market over the coming year(s) in these cities and others.  Most of the supply is in the form of units, which as shown are more likely to be rental properties.  Subsequently it seems as if landlords are set to find it more difficult to keep renters and may have to reduce rents in order to keep their properties tenanted over the coming years.  Higher vacancy rates may be felt by those landlords who own units that are in need of repair or refurbishment as tenants look for higher quality or new rental accommodation that may be more comfortable at a similar rental rate.
Rental returns
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Rental yields are expressed as gross figures so the net returns are likely to be much lower than the headline figure.  The gross rental yield has been forced lower over recent years due to little rental growth (and falls in some areas) coupled with comparatively high levels of home value growth. As a result, at the end of August 2016 the combined capital cities gross rental yield was recorded at an historic low 3.3 percent with figures of 3.0 percent in Sydney and 2.9 percent in Melbourne.  
A couple of things to note about the yield figures; firstly they assume that a property is occupied for 100 percent of the year and secondly they are based off current values, most investors would not borrow 100 percent of the loan value for an investment property.  Given these two points, lower than 100 percent occupancy would reduce the yield however, borrowing less than 100% of the property’s value would increase the yield.
As pointed out earlier, units are much more likely than houses to be used for rental accommodation and there is a record pipeline of unit stock under construction.  Gross rental yields for units specifically are higher than those for houses and recorded at 4.1 percent for combined capital city units, 3.9 percent in Sydney and 4.0% in Melbourne.  Each of these figures are at historic lows and have trended lower over recent years.  Nevertheless, when you factor in a level of equity used to purchase investment properties the returns are still far superior to most other asset classes.
Total returns
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When you factor in rental returns and capital growth, the total returns from residential property remain attractive.  Over the past year, total gross returns across the combined capital cities have been recorded at 10.7% with each capital city other than Perth and Darwin recording total returns in excess of 7.0% over the past year. Since home values ended their most recent declines in May 2012, combined capital city total returns have been recorded at 62.7% and no capital city has recorded returns of less than 25% over the period
Other asset classes
A major reason why investors remain attracted to residential property is due to the fact that with low interest rates and low economic growth internationally, returns have reduced.  Based on the most recent end of month data, 10 year Australian Government bonds were yielding 1.88 percent, 1 year term deposit rates were 2.65 percent and total returns from the ASX 200 were 9.3 percent.  The safe investment classes of bonds and term deposits are providing extremely low returns.  At the same time total returns from equities have been much stronger however, equities are a more volatile asset class than housing.
While the housing market has provided relatively strong investment returns over recent years and may continue to provide comparatively strong returns over the coming years, there are certainly some headwinds that investors need to be aware of.  Keep in mind too that the purchase cost of a residential property is significantly greater than investing in other asset classes.  The additions to housing supply underway and the weakening rental market should provide a level of caution for investors. 
Given the cost of housing and the looming challenges we would expect that although there is likely to be some further uplift in investment demand it is unlikely to result in growth in investor credit to head back towards the 10%pa speed limit.  Investors will also need to be much more selective around which properties they choose given achieving strong returns are seemingly going to be more difficult to achieve over the coming years given the looming headwinds described within.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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