National Australia Bank (NAB) will fund <a href="https://www.apartments.com.au/new-apartments/palmera-residences-gold-coast-18-garfield-terrace-surfers-paradise-qld-4217">Palmera</a>, a $1 billion, 52-level luxury residential tower being developed by Central Equity in one of the Gold Coast’s most tightly held coastal locations at Northcliffe.

The project, launched recently by <a href="https://www.apartments.com.au/developers/central-equity">Central Equity</a>, one of Victoria’s largest private residential developers, comes at a time when construction funding for large residential developments has become increasingly competitive as lenders tighten exposure to the sector.

Multiplex has been appointed the builder, and construction is now underway.

[smartcode_project:default project_id=108274 project_image_fid=365784]

Since its first project, Central Equity has delivered more than 85 residential developments with a combined end value exceeding $8 billion.

Palmera reflects Central Equity’s growing focus on the Gold Coast luxury apartment market and continues a relationship between Central Equity and NAB that dates back to the late 1980s, when the bank funded one of Melbourne’s earliest inner-city residential towers at a time when high-rise apartment living in the CBD was largely unproven.

“NAB’s funding of Central Equity’s $36 million CBD development in the late 1980’s to the financing of the billion-dollar tower today highlights the long-term relationship between the two organisations in delivering major residential projects” said Central Equity Founder and Chairman Eddie Kutner.

He said NAB’s early support was instrumental in helping establish the company’s development model.

“When we commenced our first residential tower in the late 1980s the concept of funding off-the-plan apartments was still largely untested in Australia,” Kutner said.

“NAB recognised the opportunity early and supported the project when others were uncertain. That relationship has now continued for more than 37 years across many developments.”

[smartcode_project:default project_id=108274 project_image_fid=365771]

Central Equity was established in 1987 when Melbourne’s CBD and Southbank precinct were still dominated by warehouses and commercial buildings. Fewer than 100 residents lived in Southbank at the time, and large-scale residential development in the inner city was not widely considered.

Recognising changing demographics and lifestyle preferences, the company began developing high-rise residential projects designed to bring permanent residents into the city centre.

Central Equity has provided accommodation for approximately 40,000 residents across Melbourne’s CBD and Southbank, while also incorporating supporting infrastructure including essential lifestyle facilities like retail spaces, childcare facilities and neighbourhood activity centres.

Central Equity has spent many years assembling the Palmera development site on the corner of Garfield Terrace and Frederick Street in Northcliffe, creating a supersite of around 3,300 sqm.

The developer said the Palmera apartment tower reflects its long-term view of the Gold Coast as a growing and increasingly diversified economy.

[smartcode_project:default project_id=108274 project_image_fid=365768]

Supported by infrastructure including the light rail network, major road upgrades expanded education, hospital and medical facilities and continued expansion at the Gold Coast Airport with more internation and domestic flights.

Positioned in the tightly held Northcliffe precinct, the 52-level tower will deliver 347 apartments, targeting buyers seeking a high-end coastal lifestyle, from downsizers to interstate investors.

Designed by Marchese Partners with interiors by DBI, Palmera has been conceived as a next-generation residential offering, featuring a collection of oversized apartments, with premium three-bedroom residences offering sweeping northern views stretching from Surfers Paradise through to Burleigh Heads.

[smartcode_project_cta:default project_id=108274]

Joel Robinson

NAB funds $1 billion Surfers Paradise apartment development, Palmera

Two years after completing one of the newest developments in North Sydney, developer <a href="https://www.apartments.com.au/developers/aqualand-australia">Aqualand</a> is turning its attention to the rapidly evolving St Leonards apartment market.

The developer, which completed AURA by Aqualand on North Sydney's Walker Street, has lodged plans for a 5,918 sqm site at <a href="https://www.apartments.com.au/new-apartments/33-37-herbert-street-st-leonards-nsw-2065">33-37 Herbert Street, St Leonards,</a> seeking approval for a pair of residential towers rising above a shared podium opposite Royal North Shore Hospital.

The proposal forms part of the broader transformation underway across the St Leonards-Crows Nest precinct, where former industrial and commercial sites are increasingly being redeveloped into high-density mixed-use projects tied to major transport infrastructure.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="2cc428cf-fe70-4cac-9cd5-264ad53af62c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.56%E2%80%AFAM.png?VersionId=otKSnHtbjAvAddOnovyXQMgcAwE6DMe1" />

According to the planning documents, the site sits “within the St Leonards–Crows Nest Strategic Centre, identified by the NSW Government as a key area for accommodating future jobs and housing across Sydney.”

The proposal has been designed by fjcstudio, formerly FJMT Studio, and is being progressed through the State Significant Development pathway due to its scale and affordable housing provision.

The scheme would comprise 413 apartments, including 46 affordable housing units, alongside retail and commercial uses fronting Herbert Street. The project would also include communal open space, landscaping, a swimming pool, gymnasium, children’s play areas and podium-level resident amenities.

Planning documents show the development would consist of a part-13, part-39 storey tower form positioned above a four-storey podium.

“The development comprises a unified podium that activates the street interface, and two setback towers to accommodate new housing supply while maintaining an appropriate human scale at ground level,” fjcstudio noted in its Design Report.

The northern and southern towers have been shaped to respond to the surrounding skyline while also limiting overshadowing impacts to nearby public open space, particularly Talus Reserve.

The design report said the differing tower heights were intended to “contribute to a varied skyline while responding to the surrounding built form context and solar access considerations.”

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="36da62dc-ff9e-41f2-a7e3-7be38373751c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.45%E2%80%AFAM_0.png?VersionId=Mo6Rp2r.XRLTzIfg_PEEpw8NepDH8UBs" />

The site sits directly opposite Royal North Shore Hospital and within walking distance of both St Leonards Station and the new Crows Nest Metro station.

While the site itself sits just outside the formal Crows Nest Transport Oriented Development boundary, the planning documents repeatedly reference its alignment with the broader TOD objectives reshaping the Lower North Shore.

“The site is located adjacent to St Leonards Station and in close proximity to Crows Nest Metro which is within the Crows Nest Transit Orientated Development Accelerated Precinct which has been identified by the NSW Government to support housing delivery,” the Design Verification Statement noted.

According to fjcstudio, the project has been designed to respond to the broader transition occurring across St Leonards, where increasing residential density is being concentrated around transport infrastructure and employment hubs.

“The broader precinct is undergoing significant change, with a mix of existing mid-rise buildings and newer high-density developments,” the report stated.

“Recent and approved projects indicate a consistent shift toward taller built form, typically organised as tower-and-podium typologies with more active ground levels.”

The proposal includes close to 6,000 sqm of retail and commercial space across the ground floor and podium levels, designed to create a more activated street edge along Herbert Street.

Aqualand’s plans would also introduce a landscaped podium shared between the two towers, with communal open space in the form of a podium rooftop designed to support resident interaction and improve urban greening outcomes. The scheme would also introduce pocket parks at the northern and southern ends of the site, including a landscaped area at the corner of Herbert and Ella streets designed to improve pedestrian amenity and soften the streetscape.

&nbsp;

The proposal is being progressed through the NSW Government’s Housing Delivery Authority pathway, which was introduced to accelerate housing supply across the state. The application was declared State Significant Development in April 2025 following an expression of interest process.

<img alt="Aqualand" data-entity-type="file" data-entity-uuid="faf6d97d-2671-454f-b85a-fe1c6a7be608" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%209.51.49%E2%80%AFAM.png?VersionId=diVd28OBVr5.YV.7prrOz.uAanwwwm7a" />

St Leonards has been particularly active with new developments in recent weeks. Developer SP Setia’s <a href="https://www.apartments.com.au/news/nsw/first-look-sp-setia-targets-st-leonards-skyline-with-40-storey-tod-tower">plans for a new 42-storey tower</a> recently went on exhibition through the same pathway, while <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">Stockland’s 52-storey tower proposal</a> was also recently unveiled.

Aside from the St Leonards project, which is expected to take around nine months to move through the approvals process ahead of a potential 2027 launch, Aqualand is also preparing to launch Boronia, a new apartment project in Roseville comprising around 111 apartments on Larkin Street.

The developer also has approvals in place for the next stage of the Barangaroo precinct, which will feature new residential, retail, hospitality and community uses, alongside a new metro entry across the five-hectare site.

More than 50 new retail destinations are planned for Central Barangaroo, alongside a 270-metre-long boulevard connecting Hickson Park to Nawi Cove. Together with Harbour Park, more than 50 per cent of the precinct will comprise public open space and parkland.

First look: Aqualand joins St Leonards apartment party

<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>

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

Cameron Kusher

<html><body>
The combined capital city housing markers have seen values increase by 7.0% over the first 11 months of 2014. 
Throughout the whole of 2013, capital city home values increased by 9.8% indicating that the rate of home value growth is likely to be lower this year than last.  On an annualised basis, combined capital city home value growth peaked at 11.5% in April of this year and has slowed to 8.5% over the 12 months to November 2014. 
As we enter 2015 it is our expectation that the housing market will see another year of home value growth, but not likely at the same pace as experienced over the 2014 or 2013 calendar years.  Although this is our base-case scenario, there will still be plenty of potential headwinds to watch out for that may impact on the housing market.
<h3>Unemployment</h3>
The national unemployment rate was recorded at 6.3% in November 2014 which is the highest unemployment rate since September 2002.  The Mid Year Economic and Fiscal Update (MYEFO) was released earlier this week by the federal government.  In the document the government revised up its forecast of the unemployment rate to 6.5% at the end of the current and the next financial year.
It isn’t just the high rate of unemployment which remains a concern.  Over the past year, the majority of new employment has been part-time positions which have increased by 2.5% over the year compared to a 0.7% increase in full-time employment.  The data also showed that in November 2014 the underemployment rate had increased to 8.6% which was its highest on record.  This is reflective of the strong growth in part-time employment, many working part-time would probably like to be working more hours or in full-time employment.
With comparatively high rates of unemployment and growing underemployment it has the potential to impact on housing demand.  If employees become concerned about job security they will be less inclined to commit to purchasing a home.  Furthermore, if employees can work as much as they like and subsequently earn as much as they’d like they may also not be able to purchase a home.
<h3>New APRA steps to reinforce sound residential mortgage lending practices</h3>
Last week APRA (the Australian Prudential Regulation Authority) wrote to all Australian authorised deposit-taking institutions (ADIs).  The letter highlighted further steps that will reinforce sound lending practices. 
Although the note didn’t indicate that any macroprudential tools would be formally implemented, the letter noted that APRA will be increasing supervisory surveillance to reinforce sound lending practices.  This is in response to specific prudential concerns which are detailed below:
<ol>
<li>
Risk profile – higher risk lending such as high loan to income and high loan to valuation ratios, interest-only lending to owner occupiers for lengthy periods and long term lending are of specific concern. APRA is concerned about lenders undertaking larger than normal volumes of lending in these areas. 
</li>
<li>
Investor lending – fast or accelerating credit growth in this space can be a key indicator of growing risk. APRA highlighted that annual investor credit growth that was materially above 10% per annum will be an indicator of increased risk. 
</li>
<li>
Serviceability assessments – APRA is of the view that mortgages should have a serviceability buffer of at least 2% above the loan product rate and with a minimum floor assessment rate of 7%</li>
</ol>
Through these guidelines they have advised the ADIs of the lending environment they expect.  Although there have been no blanket macroprudential tools, the letter is pointed and notes that ADIs that do not adhere to these rules will be under review to stricter lending limits. These guidelines are likely to have an impact on the residential housing market. 
Firstly the very strong growth in investor housing demand over the past two years will likely taper to a more moderate pace.  Secondly, some borrowers who are stretching themselves financially to enter the market may find accessing home loans increasingly difficult due to the new serviceability guidelines.
<h3>Household income growth</h3>
While home values have increased by 8.5% over the 12 months to November 2014, real household incomes have increased by just 0.8%. One wonders how long home value growth can continue to outpace household income growth.  
Over the 10 years to September 2014 nominal home values have increased 52.4% compared to real household income growth of 36.4%.  These two figures are not significantly different and real home value growth has actually been lower than growth in household incomes.  This would seemingly suggest that the current surge in home values, which has started to slow, cannot continue all that much longer without income growth.
Article continues on the next page. Please click below. 
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<h3>Consumer sentiment</h3>
According to the Westpac and Melbourne Institute’s monthly measure of consumer sentiment, consumers have been more pessimistic than optimistic for 10 consecutive months.  To put that in perspective, consumers haven’t been this consistently gloomy since the depths of the financial crisis in 2008 and early 2009. 
Further highlighting the consumer gloom the data shows that when respondents were asked about the wisest place for savings 40.3% chose a banks, building societies and credit unions.  This was the highest reading since September 2012. 
Over the past 15 years, an average of 27.5% of respondents have chosen this segment, highlighting the heightened sense of consumer anxiety.  The level of consumer anxiety is more confronting when you consider that those with savings in a financial institution are currently earning virtually no interest with the cash rate sitting at 2.5%.
Consumer sentiment is closely correlated with housing demand.  If consumers are feeling less confident about the overall economic conditions, they are going to be much less likely to make high commitment decisions such as taking out a new mortgage.
<h3>Housing finance commitments</h3>
We have already highlighted that APRA is concerned with the heightened level of investment lending and have provided stricter guidelines for Australian ADIs regarding to this segment of the market.  Housing finance data shows that investors are currently the primary driver of housing demand.
In October 2014, there were $11.7 billion in housing finance commitments to owner occupiers for new loans, $5.4 billion to owner occupiers for refinancing purposes and $12.1 billion to investors. 
Year-on-year, owner occupier new loan commitments are 0.8% higher, owner occupier refinances have risen 18.1% and investment loan commitments are 19.8% higher. Owner occupier new loans and investor loans are a much larger driver than refinances. 
With the new APRA guidelines it looks as if lending to the investor cohort will slow in 2015.  It is unlikely this can simply be replaced by lending to owner occupiers for new loans.  In fact, new lending to owner occupiers has been trending lower since it peaked at $12 billion in lending in November 2013.
If lending to investors slows as owner occupier lending is already doing, it seems that there will be less mortgage demand and subsequently less property transactions.  In turn, this is likely to result in lower levels of capital growth across the housing market.
<h3>Dwelling approvals</h3>
Dwelling approvals have lifted significantly throughout the past two years, providing a significant pipeline of new construction. 
Although dwelling approvals have eased over recent months, over the 12 months to October 2014 there were 197,529 dwelling approvals which is hovering around the highest annual number on record.  On a monthly basis dwelling approvals peaked in January 2014 and although they remain high, they have trended lower.
An important feature of dwelling approvals is that the number of multi-unit dwellings being approved is at near record highs.  There is growing demand for inner city units however, a unit development is typically a riskier development proposition than a detached house and ultimately multi-unit dwelling approvals are less likely to proceed into the construction phase.
If growth in home values slows throughout 2015 along with a slowdown in housing transactions, we may see some of the pipeline of approvals, particularly unit approvals, not actually make it to construction. 
In order to commence construction developers typically require a certain level of pre-sales to begin.  If sales slow, achieving a sufficient level of presales may become more difficult and may potentially jeopardise some of the progress of these projects.
<h3>Recommendations for new foreign investment rules</h3>
The House of Representatives Standing Committee on Economics recently released its findings and recommendations following a review of foreign investment. 
The four key findings of the report were:
<ol>
<li>Recognising there is no accurate or timely data that tracks foreign investment in residential real estate, the Committee recommended the establishment of a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate. 
</li>
<li>Improving the inner workings of the Foreign Investment Review Board (FIRB). 
</li>
<li>Bolstering the compliance and enforcement regime of the foreign investment rules. 
</li>
<li>Recommending an application fee of $1500 for each approval application made to FIRB by non-resident foreign investors in order to fund improved administration and monitoring of the foreign investment rules undertaken by FIRB.</li>
</ol>
The report also recommends the following civil penalties for breaches of the foreign investment framework:
<ul>
<li>Financial penalties to be calculated as a percentage of the property value, rather than restricted to $85,000 as is currently the case; and 
</li>
<li>The regime applies to both foreign investors and any third party who knowingly assists a foreign investor to breach the framework.</li>
</ul>
Although these are just recommendations at this stage, one would hope that the committee’s recommendations do get implemented.  More timely, accurate and reliable data about foreign buyers would certainly seem to be valuable and penalties for those who skirt the rules seems appropriate. 
Importantly, it is unlikely that any of these recommendations would act as a disincentive to foreign investment rather they would result in improved transparency about such investment.
This article continues on the next page. Please click below. 
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<h3>Australian dollar</h3>
In Australia we generally like to compare our currency to the US dollar.  After the end of month peak in the exchange rate of $1.08 in February 2012, the exchange rate has now fallen to $0.849 at the end of November.  Importantly, most of the fall has occurred recently, six months earlier the exchange rate was $0.93.
The fall in the trade weighted index (TWI) has not been as large as the fall relative to the US dollar.  The TWI was recorded at 68.2 at the end of November, down from 71.5 six month ago and a peak of 79.2 in February 2012.  Nevertheless the Australian dollar has weakened.
The lower dollar should provide some support for the Australian economy, making our exports more attractive and providing heightened demand for the struggling manufacturing sector.
We suspect that demand from foreign buyers has grown over recent years.  Furthermore, if the Australian dollar continues to depreciate, it is likely that Australian residential property will potentially become even more attractive for overseas buyers as the relative cost improves.
<h3>Interest rates</h3>
Official interest rates were recorded at 2.5% in December 2014, with no meeting of the Reserve Bank’s board in January they will remain at that level until at least February.  The average standard variable mortgage rate is currently 5.95%, discounted variable rates are 5.1% as are three year fixed rates.
The RBA has repeatedly stated that they believe a period of interest rate stability is the most prudent course.  In an interview with the Australian Financial Review last week Glenn Stevens remarked that any change in interest rates would have to help boost confidence while a cut may do the opposite. 
Nevertheless, over recent months there have been a growing number of economists predicting the next movement in rates would be lower as the overall economic performance slows.  The cash rate futures market is now also pricing in a 25 basis point rate cut to interest rates by June next year.
A lower interest rate would seemingly make investment in housing even more attractive as returns on cash savings reduce further.  Of course, if this were to occur it would likely take place in the face of slowing growth in housing demand and limits on just how much Australian ADIs can lend to the investment segment of the market. As the RBA has previously stated, there are limits to what monetary policy can do. 
Given this, a further 25 basis points cut to official interest rates may make little material difference to the residential property market….of course it could also make a substantial difference.
<h3>Conclusion</h3>
At CoreLogic we are of the view that home value growth will continue in 2015, albeit at a more moderate pace than what we have seen in 2014.  As the above analysis shows there are plenty of factors which will impact on the housing market in 2015, not to mention potentially hundreds of other factors which could impact on the direction of the market. 
It will be important to keep track of the broader economic trends and consider how that may impact on your property in 2015.
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The economic factors to watch that may impact the housing market in 2015

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Combined capital city dwelling values fell by -0.3% in November 2014 according to the CoreLogic RP Data Home Value Index. 
Over the month, values increased in four cities and fell across the remaining four.  Values were higher over the month in Sydney, Brisbane, Perth and Hobart and were lower elsewhere.  Over the first 12 months of the year, combined capital city home values have increased by 7.0%.  As a result, it looks as if home value growth in 2014 will be lower than the 9.8% increase in 2013.
Over the three months to November 2014, combined capital city home values rose by 0.8%.  The results over this period show that the growth in the market is quite narrow with only Sydney (3.1%), Brisbane (1.7%) and Perth (0.4%) recording value rises.  Elsewhere, values fell over the three months by -1.6% in Melbourne, -0.5% in Adelaide, -2.5% in Hobart, -2.1% in Darwin and -3.3% in Canberra.
The rate of home value growth over the 12 months to November 2014 has continued to slow.  After the annual rate of home value growth across the combined capitals peaked at 11.5% in April it has slowed to a rate of 8.5% in November.  The 8.5% growth over the year to November is the slowest rate of annual growth since November of last year.  Sydney continues to be the key driver of capital growth with home values up 13.2% over the past year.  Melbourne has been the second strongest performer with values up 8.3% and Brisbane home values are 6.0% higher.  Elsewhere, values have risen by 2.8% in Adelaide, 1.4% in both Perth and Darwin, 5.2% in Hobart and 1.7% in Canberra.  The annual rate of home value growth is now lower than the recent peak across all capital cities other than Hobart.
Houses have recorded a superior rate of value growth compared to units across the combined capital cities over the past year.  Over the 12 months to November, capital city house values are 8.9% higher compared to a 5.9% rise in unit values.  Across each capital city annual value growth for houses has been greater than that for units over the last year.
Combined capital city home values are now 10.8% higher than they were at their previous cyclical peak in October 2014.  Between October 2010 and May 2012, combined capital city home values fell by a total of -7.7%.  From their low point in May 2012, combined capital city home values have increased by 19.6% however, the value increases have been narrowly based. The greatest rises in values over the current growth phase have occurred in Sydney (31.2%), Melbourne (17.6%), Darwin (17.5%) and Perth (15.5%).  Growth across the remaining capital cities has been much more moderate with values rising 10.6% in Brisbane, 7.4% in Adelaide, 5.2% in Hobart and 4.8% in Canberra.  As the data shows, Sydney has been the primary driver of value growth followed by Melbourne, Darwin and Perth albeit their growth has been somewhat lower than Sydney’s.
CoreLogic estimates that over the third quarter of 2014 there were 53,962 capital city houses and 24,124 capital city units sold across the country.  The number of home sales over the most recent three months is -2.8% lower than over the same period in 2013.  House sales are actually 1.0% higher than a year ago while unit sales are -10.3% lower.  Importantly with so many off –the-plan sales taking place final numbers upon settlement of these projects may revise higher.  Within the individual capital cities, sales over the last three months were lower than a year ago in Sydney, Perth and Canberra but still higher elsewhere.
Selling conditions are still quite favourable in the market however, stock levels are starting to rise and there are variations across the cities.  Discounting levels across the combined capital cities sat at 5.5% while the average time on market is at an all-time low of 36 days.  Remember that the stronger markets of Sydney and Melbourne are having a much greater impact on these figures.  The number of new properties listed for sale across the combined capital cities is now 0.4% higher than a year ago.  Total listings are -2.4% lower than they were a year ago however, they are currently at their highest level since the middle of December last year.  With stock on market rising it will be very interesting to see what happens to time on market and discounting levels over the next few months.
Value growth on an annual basis remains much stronger than rental growth however, the more recent weaker capital growth conditions have seen the decline in gross rental yields stall.  Over the past 12 months, combined capital city rental rates have increased by just 1.9%.  House rents have increased by 1.8% and unit rents are 2.3% higher.  Although rental growth is slow, rental rates have risen over the year in all capital cities except Perth, Darwin and Canberra.  With a strong pipeline of dwellings both under construction and due for commencement it seems likely that the rate of rental growth will remain soft for the foreseeable future.  Gross rental yields across the combined capital cities sit at 3.7% for houses and 4.5% for units. At the same time a year ago they were recorded at 4.0% and 4.7% however, yields have been on hold for the past four months for both houses and units.
As always, there is likely to be a continued variance in performances from city to city and region to region. Much of the growth over the past two and a half years has occurred in Sydney and Melbourne and this appears to be continuing with the rise in values only moderate outside of these cities.  Note that the annual rate of value growth in both Sydney and Melbourne has been slowing over recent months.  Subsequent purchasers and investors are the main drivers of the market currently spurred by the low mortgage rate environment. 
From an investor’s perspective the best opportunity to enter the Sydney, Melbourne or Perth markets has likely passed, especially considering the strong value growth over the past year is now moderating and rental yields are low.  The RBA has also flagged that they are concerned with the level of investment lending taking place in both Sydney and Melbourne and APRA has recently announced greater surveillance of mortgage lending, specifically investor and higher risk lending by the banks. 
It will be interesting to see whether investors start to turn their attention away from cities such as Sydney and Melbourne and towards higher yielding markets that are earlier in their value growth phase such as Brisbane and potentially Adelaide where value growth is now becoming more evident and the cost of housing is significantly lower than in Sydney and Melbourne. 
Of course, with APRA announcing that banks need to limit their growth in investment lending to around 10% per annum we would expect this will have a significant impact on investor demand for mortgages over the coming year.  As a result of these changes and slowing home value growth, investors may potentially start looking at other asset classes. 
RP Data anticipates that the rate of capital growth, particularly in Sydney and Melbourne will continue to moderate over the coming year. We believe that home values will continue to increase over the coming year however, the rate of growth will continue to slow and markets such as Perth, Darwin and Canberra look susceptible to value falls over the coming year.
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The best opportunity to enter the Sydney, Melbourne or Perth markets has likely passed: 2015 market outlook

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The Australian Bureau of Statistics (ABS) published housing finance data for October yesterday. 
The data release coincided with the Australian Prudential Regulation Authority (APRA) sending Australian Authorised Deposit-taking Authorities (ADIs) a letter on Tuesday afternoon.  The letter highlighted that APRA was going to increase surveillance on risky lending and have a specific focus in growth in investor lending by ADIs. 
The October housing finance data showed that the proportion of lending to investors had grown to fresh record highs while owner occupier lending is slowing.
The value of housing finance commitments continues to become much more important than the headline number of commitments.  The reason being that the number of commitments only coves owner occupier commitments, excluding investors completely which are the key driver of the current market. 
Furthermore, with APRA now focused on ADIs not growing housing credit to investors too fast, a focus on the value of lending becomes even more important.
<img class="aligncenter size-full wp-image-4104" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-12.jpg" alt="Chart 1" width="500" height="180">
The above chart uses raw (not seasonally adjusted) data and uses a 12 month average to smooth the volatility of the data.  The chart shows an ongoing decline in demand from owner occupier first home buyers and more recently a dip in commitments by owner occupiers that already own a home. 
Across the four borrower types listed you can see that investors now account for the greatest proportion of borrowings from ADIs.  With values continuing to rise across capital city markets clearly they are a key driver of this growth.
<img class="aligncenter size-full wp-image-4105" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-22.jpg" alt="Chart 2" width="500" height="181">
The second chart shows the monthly value of housing finance commitments across owner occupier new loans (excluding refinances) owner occupier refinances and investment loans. 
Over the month, owner occupier refinance commitments increased by 3.7%, owner occupier new loan commitments fell by -0.1%, while investment commitments rose by 1.0%. 
Year on year, the increases have been recorded at 18.1% for owner occupier refinances, 0.8% for owner occupier new loans and 19.8% for investment loans.  With $5.4 billion in commitments for owner occupier refinance commitments in October, activity in this space continues to trend higher. Investment lending is also trending higher reaching a record high $12.1 billion in October. 
Meanwhile, owner occupier new loan commitments have actually pulled back a little of late.  After monthly commitments sat at a record high $12.0 billion in November 2013, they have pulled back to $11.7 billion in October 2014.
For only the second month on record, the value of investment loans was greater than the value of owner occupier new loans in October 2014.
<img class="aligncenter size-full wp-image-4106" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-32.jpg" alt="Chart 3" width="500" height="180">
As a proportion of the value of all housing finance commitments, investors were steady at a record-high 41.4% in October.  Owner occupier new loans accounted for 40.2% (a new all-time low) and owner occupier refinances accounted for 18.5% of lending, its greatest proportion since August 2012. 
If we just look at new lending, excluding refinances, investment lending reached a new all-time high of 50.8% of total lending in October, more than one in every two loans.  The capital city housing market has been rising since hitting a low point in May 2012 and at that time investor housing finance commitments totalled $6.9 billion and 33.9% of all housing finance commitments. 
Clearly there has been a substantial surge in demand from this segment, recorded at $12.1 billion in October 2014 and 41.4% of all borrowings.
<img class="aligncenter size-full wp-image-4107" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-42.jpg" alt="Chart 4" width="500" height="181">
The headline result that gets reported on each month is the number of owner occupier loans.  Although it is a very valuable statistic, it should be read with caution because it is missing a significant proportion of the market, those represented by investors. 
As the above chart shows, much like the data on the value of commitments, the number of owner occupier new loan commitments is now trending lower while refinance commitments trend higher at a  moderate pace.  In October, the number of refinance commitments rose 3.6% while new loan commitments fell by -1.4%. 
Year on year, refinances are 7.5% higher while new loan commitments are -4.2% lower.  The number of new loan commitments most recently peaked at 35,568 in November 2013 and has since fallen by -5.5% to 33,597 commitments in October 2014.  There were 18,123 refinance commitments in October 2014, the highest monthly volume since February 2008.
<img class="aligncenter size-full wp-image-4108" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-51.jpg" alt="Chart 5" width="500" height="181">
As investor activity has risen, there has been a sharp drop-off in the number of loans to first home buyers.  Although there is no data to support it, there are plenty of anecdotal suggestions that many first home buyers are choosing to purchase investment properties rather than homes for owner occupation.  Unfortunately, the ABS data only captures those homes purchased by first home buyers for owner occupation. 
Owner occupier first home buyer numbers continue to languish at near record low levels.  The proportion of total owner occupier housing finance commitment to first home buyers hit a record low 11.6% in October 2014.  The number of loans actually rose, up 1.2% over the month however, year-on-year first home buyer commitments are -7.8% lower.
The Reserve Bank (RBA) has already highlighted a number of times that they have some concerns with the heightened level of investment activity, particularly in Sydney and Melbourne.  With the proportion of loans to investors hitting a new record high in September it will further re-iterate those concerns. 
This week, APRA wrote to ADIs highlighting some concerns about lending practices and providing a set of guidelines to ensure prudential standards are maintained.  With investor activity continuing to rise in October, it seems the concerns are well found. 
We may see a further increase in the November data next month however, it is likely that growth in the value of investment finance commitments should start to ease thereafter.
<img class="aligncenter size-full wp-image-4109" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-61.jpg" alt="Chart 6" width="500" height="182">
Of course, owner occupier lending demand is already slowing and if/when investment lending follows suit, demand for mortgages should ease and we would expect that it will also continue to contribute to a further slowing of home value growth. It will be interesting to see how the slowing of demand plays out from a new housing perspective. 
With the RBA hopeful that a heightened level of housing construction can help assist the economy as it transitions away from resource investment, as value growth slows some of these projects may be in jeopardy. 
Given most developers are private businesses, they generally need growing demand for housing and some increase in home values to allow enough pre-sales for the project to go ahead. 
We are already seeing sales volumes and home values trending lower, so if demand for mortgages softens further we will potentially see a fall in dwelling commencements despite the fact that there is such a strong pipeline of development in place. 
It will be interesting to see how this plays out in 2015.
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No wonder APRA are concerned: Investment lending continues to surge in October

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This week I'm going to take a look at how current housing market conditions compare with the boom in home values between 2001 and early 2004. 
Immediately a point to note is that the current housing market upswing came off the back of dwelling values falling over the previous two years. If we assume that the previous boom period began at the start of 2001, there had actually been no home value falls prior to its commencement, rather the increase in home values had been more moderate at 6.6% over the 2000 calendar year.
<img class="aligncenter size-full wp-image-4089" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-11.jpg" alt="Chart 1" width="500" height="186">
The previous boom ran from the beginning of 2001 until October 2004 across the combined capital cities.  Over that 46 month period, home values rose by a total of 68.1% across the combined capital cities. 
This is a monthly rate of value growth over that period of almost 1.5%.The current rise in capital city home values commenced in June 2012 and up until November 2014 values had been trending higher for 30 months.  Over this 30 month period combined capital city home values have increased by 19.6% or a monthly rate of growth of 0.7%. 
Again it is also important to consider that the current growth phase occurred off the back of values having fallen by -7.4% between October 2010 and May 2012.  After 30 months of growth in the 2001 to 2004 growth period, combined capital city home values were 52.1% higher.
The combined capital city growth really only tells part of the story though.  The capital city housing market isn’t homogenous and growth periods begin and end over different lengths of time.  Because Sydney and Melbourne are the largest cities by some way and given our Home Value Index is weighted to reflect that, the capital city results are influenced much more by these two cities than the other capital cities.
Given there were no home value falls prior to the growth between 2001 and 2004, if we assume that the growth phase stared in January 2001 we see that the growth ran for varying lengths of time. 
In fact in most capital cities, home values continued to rise following October 2004 albeit the rate of growth was more moderate than it had previously been. Looking at home value growth across the cities from January 2001 to October 2004 you can see that the rate of growth varied greatly.  It is interesting to note that Sydney and Melbourne’s rate of value growth over that period was much more moderate than in all other capital cities except Darwin. 
Furthermore, the growth in home values commenced much later and ran for longer in most other capital cities.
Taking a look at the level of value growth over the current growth phase there are quite a few points of note.  Firstly growth has been more moderate than what was recorded over the previous growth phase.  Secondly, while Sydney and Melbourne were two of the weaker growth performers previously, they have been the standout performers across the current growth phase. 
Sydney and Melbourne have been the strongest growth performers, value growth has been moderate elsewhere but particularly weak in Adelaide (3.6%), Hobart (0.0%) and Canberra (4.6%).
<img class="aligncenter size-full wp-image-4090" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-21.jpg" alt="Chart 2" width="500" height="177">
To look at the results another way and by way of direct comparison, we should look at the rate of value growth per month.  To determine this I have divided total value growth by the number of months and the results make for some interesting reading.  Between January 2001 and October 2004, the rate of monthly growth across the cities was recorded at: 1.3% in Sydney and Melbourne, 2.3% in Brisbane, 2.0% in Adelaide, 1.4% in Perth, 3.0% in Hobart, 0.7% in Darwin and 2.1% in Hobart. 
Looking to the current growth phase, monthly value rises have been recorded at: 1.1% in Sydney, 0.6% in Melbourne, 0.4% in Brisbane and Darwin, 0.1% in Adelaide, 0.5% in Perth, 0.0% in Hobart and 0.2% in Canberra.  Clearly the growth in home values has been more moderate over the most recent growth phase.
<img class="aligncenter size-full wp-image-4091" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-31.jpg" alt="Chart 3" width="500" height="179">
While growth has been more moderate, so too have the number of homes selling.  In both growth phases the number of sales has increased however, in the current market the rise in sales has been much more modest than the rise in 2001-04. 
Over the period from January 2001 to October 2014 there was a total of 1,402,217 capital city house and unit sales or a monthly average of 30,481. 
In comparison, over the period from June 2012 to September 2014 there have been 716,908 house and unit sales or a monthly average of 25,604 sales.  Monthly sales volumes over the current growth phase have been -16% lower than they were between 2001 and 2004 despite a high rate of population growth and development of new housing stock.
<img class="aligncenter size-full wp-image-4092" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-41.jpg" alt="Chart 4" width="500" height="178">
Across the individual capital cities the number of monthly sales is lower than over the 2001 to 2004 boom period.  In Sydney monthly sales are -14% lower and elsewhere the differentials are recorded at: -8% in Melbourne, -28% in Brisbane, -12% in Adelaide, -16% in Perth, -35% in Hobart, -4% in Darwin and -31% in Canberra.  So not only has value growth been slower in each capital city this time around, so too has transaction activity.
The lower rate of sales can probably be attributed to the low level of first home buyer participation in the market as well as household savings being much higher than what was recorded between 2001 and 2004.
Article continues on the next page. Please click below.
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Looking at some of the broader economic conditions suggest some sizeable differences between the 2001-04 boom and current market conditions.
At the beginning of 2001 standard variable mortgage rates were recorded at 8.05%.  By the end of the year they had fallen to 6.05% which was the low point for the cycle.  By the time home value growth began to fall standard variable mortgage rates had climbed to 7.05%.  Over the current growth phase, standard variable mortgage rates were 6.85% in June 2012 having fallen from 7.05% the previous months. 
From that level they have fallen to 5.95% and have been on hold at that level for the past 16 months.  Given this for the past 16 months standard variable mortgage rates have been lower than they ever were during the 2001 to 2004 boom.
Housing credit advanced by a total of 89.1% over the period from January 2001 to October 2004 at a rate of 1.9% a month.  Over that period, investor credit expanded at a rate of 2.4% a month, outpacing the 1.7% monthly expansion in owner occupier credit.  Over the current growth period, housing credit has expanded by 13.4% at a rate of 0.5% a month.  Over the period, owner occupier credit has risen by 0.4% a month compared to 0.6% a month for investor credit.
The rate of credit growth really does only tell part of the story because much more is lent for housing now than it was back in the previous boom so you would expect the growth rate to be lower now.  It is important to remember that the cost of housing was also lower at that time so the typical mortgage was much lower than it is today. 
Finally, because the data looks at credit outstanding, if repayment of that credit is being made at a faster pace it will also impact on these figures.  Throughout the 2001 to 2004 boom housing credit expanded at a rate of $6.4 billion a month with owner occupier credit up $4.0 billion a month and investor credit rising $2.4 billion a month. 
Over the current growth phase, housing credit is expanding at a rate of $5.7 billion a month with owner occupier credit rising $2.9 billion a month compared to a $2.8 billion monthly increase in investor credit.  This seems to suggest that housing credit is increasing by only a slightly lower amount currently than it was back in the 2001 to 2004 boom. 
As mentioned before, the biggest influence on this is likely to be the cost of housing now as opposed to then especially when you consider how much lower sales transactions are currently.
Looking at the supply of housing, over the 2001 to 2004 period, an additional 654,253 dwellings were approved for construction at a rate of 14,223 per month.  Over the current phase there have been 436,130 dwelling approvals at a rate of 15,039 per month.  In the current phase the pipeline of approvals has grown at a faster rate of course, the national population is higher so this is certainly a positive outcome.
Unfortunately population growth data is only available each quarter.  Each month we do receive overseas arrivals and departures data which correlates strongly with net overseas migration data.  The other component of population growth, natural increase, does not have as big of an impact on housing demand as overseas migration. 
Over the 2001 to 2004 boom period, there were 603,550 net long-term and permanent arrivals to Australia at a rate of 13,121 per month.  Over the current growth phase there have been 880,120 net long-term and permanent arrivals to Australia at a rate of 31,433 per month.  The data shows that net migration to Australia has been much stronger over the current growth phase compared to the previous phase which creates additional housing demand.
Household finance data highlighting selected ratios from the RBA is only available each quarter but is worthwhile to analyse.  Between December 2000 and September 2004, the ratio of housing debt to household disposable income increased from 78.8% to 118.0%.  Subsequently, household debt to household disposable incomes rose from 95.2% to 137.2% and housing assets to household disposable income rose from 333.4% to 448.3%. 
From June 2012 to June 2014, housing debt to disposable income rose from 130.4% to 137.7% and household debt to disposable incomes rose from 145.2% to 151.1%.  Meanwhile, housing assets to disposable income increased from 393.7% to 433.6%.
In summary, the comparison between the 2001 and 2004 growth phase and the current one shows:
<ul>
<li>Growth in home values has been much more moderate over the current phase than in what was recorded over the housing boom of 2001-04 and this is also the case across all capital cities. 
</li>
<li>The 2001 to 2004 growth phase was broad occurring in all capital cities where the current phase is characterised as being quite narrow, focussed mainly on Sydney and Melbourne. Importantly, the growth trend in the previous growth phase started in Melbourne and Sydney before rippling to the other capital cities. 
</li>
<li>Transaction volumes for houses and units have been significantly lower over the current growth phase compared to the previous phase (despite a larger population and higher overseas migration). 
</li>
<li>Standard variable mortgage rates have typically been much lower over the current growth phase than they were in 2001 to 2004 with rates consistently at record lows for the past 16 months. 
</li>
<li>The rate of growth in housing credit has been much more moderate over the current growth phase compared to the 2001-04 boom phase. 
</li>
<li>Although the rate of credit growth is slower now than before, so too is the value of housing credit increases albeit the gap between 2001 and 2004 and the current phase is much narrower. 
</li>
<li>On a monthly basis we are currently approving more dwellings for construction than we were in 2001 to 2004. Keep in mind that we are also approving a lot more units than we were in 2001 to 2004 and unit approvals have proven to be less likely to ultimately be constructed than houses. 
</li>
<li>Net long-term and permanent arrivals have been significantly greater over the current growth phase than they were between 2001 and 2004. 
</li>
<li>The 2001 to 2004 boom period coincided with a significant rise in housing and household leverage along with a jump in housing assets. Whilst each of these factors have also increased over the current growth phase the slope of the increase has been much more moderate.  Furthermore over the current phase the ratio of housing assets to household income has increased by a greater amount than household and housing debt to disposable income while in 2001 to 2004 it increased at a slower pace.</li>
</ul>
Debate around the sustainability of home value growth over the current growth cycle is healthy and warranted, however some lessons can be learnt from how the housing market performed during an even stronger and longer growth phase over the period from 2001 to 2004. 
As interest rates rose, housing market exuberance was gradually quelled.  Values didn’t plummet, but they did retreat in Sydney and growth rates flattened out in most other cities.  Australian households are now more sensitive to the cost of debt, with the ratio of disposable income to household debt at record highs which means the market will probably respond even more swiftly to any perception of interest changes ahead.
Importantly we are already seeing the housing market move through the peak rate of growth.  The CoreLogic RP Data Home Value Index peaked in April this year and the rolling annual rate of capital gain has been drifting lower since that time. 
Transaction numbers have also levelled, as has the average selling time of a home, the rate of vendor discounting and growth in housing credit. 
Our expectations looking forward are that growth rates will continue to drift lower, at least at a macro level due to natural affordability pressures, compressed rental yields and further warnings on speculative investment from the RBA.
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How does the current growth cycle compare to the 2001 to 2004 boom?

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The Australian Bureau of Statistics (ABS) released building approvals data for October 2014 last week.
<img class="aligncenter size-full wp-image-4077" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-1.jpg" alt="Chart 1" width="500" height="179">
The headline data showed that there were 17,062 total dwelling approvals in October 2014.  Total dwelling approvals increased by 11.4% over the month and were 2.5% higher year on year. 
Although there was quite a strong rebound in monthly approvals, they remain -3.7% lower than their recent monthly peak of 17,721 approvals in January 2014.
<img class="aligncenter size-full wp-image-4078" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-2.jpg" alt="Chart 2" width="500" height="180">
The large increase in dwelling approvals over the month was driven by the much more volatile unit approvals. 
In October, there were 9,478 houses and 7,584 units approved for construction.  House approvals were -0.3% lower over the month while unit approvals were 30.4% higher.  year on year, house approval have increased by 12.2% while unit approvals have fallen by -7.4%. 
As the second chart shows, the six month trend indicates a slowing of dwelling approval numbers.  The slowing trend in approvals is much more apparent for units whereas house approvals appear to have reached a plateau. 
It is also important to remember that a multi-unit development of units is more risky than developing a single house and ultimately less likely to ultimately be constructed.
<img class="aligncenter size-full wp-image-4079" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-3.jpg" alt="Chart 3" width="500" height="177">
Looking at dwelling approvals across the combined capital cities, there were 14,635 approvals in October which was an all-time high. 
Capital city dwelling approvals have increased by 18.5% over the month and are 4.5% higher year on year.  You only have to visit any of the major capital cities to see that there has been a significant surge in construction activity of new homes over recent years. 
The approvals data indicates that the dwelling construction pipeline in these regions is continuing to grow.
<img class="aligncenter size-full wp-image-4080" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-4.jpg" alt="Chart 4" width="500" height="178">
One factor that sets apart the capital city market from the national market is the much greater prevalence of unit approvals.  In fact, over the past two years there have generally been more capital city units approved each month than houses. 
In October, there were 7,139 capital city houses and 7,496 capital city units approved for construction.  The 7,139 house approvals were the highest number of approvals over any month since November 1999. 
Monthly unit approvals were at their highest level since October 2013.  Over the month, capital city house approvals increased by 6.8% while unit approvals rose 32.4%.  Year on year, house approvals were up 15.7% while unit approvals are -4.3% lower.
<img class="aligncenter size-full wp-image-4081" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-5.jpg" alt="Chart 5" width="500" height="178">
Looking at dwelling approvals across the major capital cities, you can see that approvals are higher than they were a year ago in most cities. 
Dwelling approvals were lower in October 2014 than they were in October 13 in Sydney (-1.6%), Darwin (-42.3%) and Canberra (-43.9%).  Across the remaining capitals, the year on year increase in approvals has been recorded at: 5.3% in Melbourne, 5.6% in Brisbane, 16.3% in Adelaide, 23.4% in Perth and 66.1% in Hobart. 
In Melbourne and Perth dwelling approvals currently sit at near record highs.
<img class="aligncenter size-full wp-image-4082" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-6.jpg" alt="Chart 6" width="500" height="178">
House approvals are trending higher across each of the major capital cities.  Although the trend is towards more house approvals year on year approvals are now lower in Adelaide (-17.3%) and Darwin (-1.6%). 
Across the remaining cities, the year on year increase in house approvals have been recorded at: 28.3% in Sydney, 23.8% in Melbourne, 28.4% in Brisbane, 4.5% in Perth, 26.3% in Hobart and 3.8% in Canberra.
<img class="aligncenter size-full wp-image-4083" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-7.jpg" alt="Chart 7" width="500" height="178">
Across the major capital cities, the above chart shows that nowadays a much greater number (and subsequently proportion) of units are being approved for construction. 
It is interesting to note that unit approvals are trending sharply lower in Sydney lately while elsewhere they continue to trend higher.  Also note that for most of the past six years Melbourne has been approving a greater number of units than Sydney. 
As mentioned earlier, the unit data tends to be much more volatile than the house approvals data and is reflected in the year on year change in approvals to October 2014.  Over the period, the change in approvals across the cities have been recorded at: -15.3% in Sydney, -6.1% in Melbourne, -8.3% in Brisbane, +84.4% in Adelaide, +117.8% in Perth, +520% in Hobart, -52.6% in Darwin and -58.4% in Canberra.
<img class="aligncenter size-full wp-image-4084" src="https://blog.corelogic.com.au/wp-content/uploads/2014/12/Chart-8.jpg" alt="Chart 8" width="500" height="178">
If we look over the past 12 months, half of all capital city dwelling approvals were for houses.  In fact, the result is only really driven down by the fact that in Adelaide, Perth and Hobart so few units relative to houses have been approved.  In each of the remaining capitals more than 50% of approvals have been for units. 
Units have historically been less likely to ultimately reach completion than houses.  Given the high number of unit approvals over the past two years and the fact that home value growth is now slowing, you do wonder just how many of these units that are approved will actually be constructed in the current cycle.
Dwelling approvals remain at a very high level and with the rate of population growth slowing, it is encouraging to see that supply has responded on the back of low interest rates and some rises in buyer demand and home values. As the rate of value growth slows along with sales activity, it will be interesting to see how much of this stock which is approved will commence and ultimately make it to completion. 
Furthermore, we know that much of the unit stock which is now so prevalent in inner city areas is being purchased by investors.  With capital growth slowing and rental growth slow, this may also impact on some of the future construction of these approved units. 
The Reserve Bank has also flagged that they, along with banking regulators, are looking to curb higher risk lending to investors. 
We don’t yet know what these curbs may be but once implemented they may act as a further deterrent to investors and put into jeopardy some of these inner city unit approvals coming to fruition.
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Approvals data shows supply responding to low interest rates and buyer demand

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Last week the House of Representatives Standing Committee on Economics released their recommendations following their investigation into Australia’s foreign investment framework as it applies to residential real estate. 
The Committee tabled 12 recommendations:
<ol>
<li>The current foreign investment applying to foreign purchases of residential real estate be retained in its current form, utilising the existing legislated prohibitions and restrictions on purchases of established dwellings, and encouraging foreign investment to increase Australia’s supply of new housing. </li>
<li>The Foreign Investment Review Board (FIRB) and the Foreign Investment and Trade Policy Division of Treasury put in place appropriate processes for the purpose of audit, compliance and enforcement of the foreign investment framework.  Such processes must accurately capture audit, compliance and enforcement data for the purpose of oversight of the FIRB and the Australian Treasury. </li>
<li>The government apply a modest administrative fee to the current screening of all foreign purchases of residential real estate, including purchases by temporary residents.  Fees collected should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities. </li>
<li>
The Government introduce a civil penalty regime for breaches of the foreign investment framework as it applies to residential real estate, with the following features: • Pecuniary penalty orders imposed under this penalty regime to be calculated as a percentage of the property value to act as an effective deterrent; and • The regime to apply to foreign investors and any third party who knowingly assists a foreign investor to breach the framework. Pecuniary penalty orders collected should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities. 
</li>
<li>The government amend the Foreign Acquisitions and Takeovers Act 1975 to provide that criminal penalties for breaching the foreign investment framework as it applies to residential real estate, apply equally to any third party who knowingly assists a foreign investor in residential real estate to breach the foreign investment framework. </li>
<li>In any instance where a foreign owner divests an illegally held established property, any capital gain from the sale of that property be retained by the government.  Funds collected by this measure should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities. </li>
<li>Australia’s Foreign Investment Policy be amended to explicitly require a temporary resident to divest an established property within three months if it ceases to be their primary residence. </li>
<li>The government, in conjunction with the states and territories, establish a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate.  This information should be accessible by relevant agencies from a single database. </li>
<li>
The government establish an alert system for the expiry of temporary visas that can be used by the Treasury to issue property divestment orders in cases of non-compliance: • By amending the Migration Act 1958 so that the Department of Immigration and Border Protection must inform the FIRB when a temporary resident departs Australia upon expiry of their visa; and • By establishing effective and timely internal processes at the Treasury to receive and cross-check this information against its property databases to screen for compliance with the foreign investment framework. 
</li>
<li>The government amend the Foreign Acquisitions and Takeovers ACT 1975 to provide that residential property sold under off-the-plan certificates that is marketed for sales overseas, must be marketed in Australia for the same period of time.  Breaches of this requirement should be subject to sanctions under the Act ranging from fines to the cancellation of a sale. </li>
<li>In light of the expected finalisation of the statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in early 2015, the Committee recommends that the government consider the purchase of residential property by foreign investors as a a possible area of investigation when considering amendments to the legislation. </li>
<li>Treasury’s Foreign Investment and Trade Policy Division make greater use of the databases held by AUSTRAC, and also of other relevant federal and state government databases, to assist the FIRB in its duties and responsibilities. </li>
</ol>
Overall the recommendations are largely within the framework that currently exists, ensuring that foreign buyers only purchase homes which are newly constructed. There are some concerns that the additional administrative fee to screen foreign buyers will act as a disincentive to investment however, reports suggest the fee will only be $1,500. 
In our opinion it is unlikely that such a nominal fee on such a high cost purchase will make a difference.  The introductions for penalties not only for those that purchase non-compliant properties, but also to those that aid such a purchase is also a good step. Any measure that can help to reduce the occurrence of such fraud should be encouraged. 
With the increasing cooperation of state land registries and the development of a national e-conveyancing platform over recent years, the development of a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate is a welcome, important and achievable initiative in order provide increased transparency in relation to foreign investment in real estate through the provision of timely, accurate and reliable data. 
The proposed application of a more severe civil penalty regime to third parties who ‘knowingly assist a foreign investor to breach the framework’ has broad potential application and will be a closely watched development.
It has the potential to extend to real estate agents, banks facilitating the flow of purchase monies from offshore, banks providing mortgage finance and even conveyancers and legal professionals. 
Importantly, the recommendations in the report should not be viewed as a deterrent to continued foreign investment in the Australian housing market, with residential construction activity being a key contributor to Australia’s economic growth, with housing starts in in 2014 now approaching 190,000 units.  
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Foreign buyer review recommendations won't deter investment

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The Australian Prudential Regulation Authority (APRA) released their quarterly Authorised Deposit-taking Institution (ADI) Property Exposures data for September 2014 last week. 
The data always provides a valuable insight into current and historic mortgage lending by domestic ADIs and this quarter’s release was no different.
<img class="aligncenter size-full wp-image-4041" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-11.jpg" alt="Chart 1" width="500" height="180">
Based on the value of all outstanding mortgages by households to Australian ADI’s, there was $825.0 billion outstanding to owner occupiers (66.0% of all housing loans) at the end of September 2014 and $425.4 billion to investors (34.0%). 
Over the 12 months to September 2014, the total value of outstanding mortgages to owner occupiers has increased by 7.6% compared to an 11.9% rise in outstanding credit to investors.  This represents the greatest annual increase in owner occupier lending since June 2012 and the greatest rise in investor lending since December 2010. 
Much like other data received more regularly, the chart indicates that there is significantly more momentum in the investor lending space than that for owner occupiers where growth is more moderate.
<img class="aligncenter size-full wp-image-4042" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-21.jpg" alt="Chart 2" width="500" height="182">
At the end of September 2014, a record high 36.8% of loans outstanding had an offset facility, up from 34.2% a year earlier.  Also a record high was the 36.8% of all outstanding mortgages which were interest-only, up from 34.6% a year earlier. 
Just 0.2% of all outstanding mortgages were reverse mortgages and 2.7% were low documentation which was down from 3.6% a year earlier and at a record low proportion.  Other non-standard loans accounted for just 0.1% of all outstanding mortgages. 
It seems that more and more mortgagees are accessing offset accounts in order to reduce the interest payable on their mortgages and maximise repayments of the principal while interest rates are so low.  The data also indicates that a high proportion of lenders are accessing interest-only mortgages which seems somewhat counterintuitive at a time when interest rates are so low.
<img class="aligncenter size-full wp-image-4043" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-31.jpg" alt="Chart 3" width="500" height="181">
The average balance on all outstanding mortgages at the end of September 2014 was $238,700.  The average balance has increased by 3.0% over the past year. 
Loans with an offset facility ($284,600) and interest-only mortgages ($308,400) have much higher average outstanding loan balances. 
It is interesting to note that the annual growth in average outstanding loan balances has been much more moderate for mortgages with an offset and interest-only mortgages at 2.0% and 2.1% respectively. 
Encouragingly, the data also indicates that outstanding balances are reducing for low documentation and other non-standard loans as they become less common.  Over the past year the average balance has fallen by -3.1% for low-documentation loans and by -6.5% for other non-standard loans. 
With mortgage rates low and fewer of these loan types being written it seems those that have these types of loans are continuing to pay down these mortgages.
<img class="aligncenter size-full wp-image-4044" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-41.jpg" alt="Chart 4" width="500" height="179">
Turning the focus to new loans written over the September quarter, 62.6% of the total value of new lending was to owner occupiers and 37.4% was to investors. The proportion of new lending to investors has fallen from a record high of 37.9% in the June 2014 quarter. 
Based on this data it suggests that growth in demand for both owner occupier and investment lending may have peaked. 
Although after having trended lower over the previous two quarters, the annual change in new owner occupier and investment lending bounced in September, recorded at 6.9% and 21.4% respectively.
Article continues on the next page. Please click below.
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<img class="aligncenter size-full wp-image-4045" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-51.jpg" alt="Chart 5" width="500" height="181">
Over the September 2014 quarter, 0.7% of new loans approved were low-documentation, 42.5% were interest-only, 0.1% were other non-standard loans, 43.2% were third party originated loans and 3.5% were loans approved outside of serviceability. The 42.5% of new loans which were interest only was down from a record high of 44.0% over the previous quarter. 
 The data also seems to reflect the slowing of growth in investment demand, remember that interest only loans tend to be (but not always) reflective of lending for investment purposes.  
The ADIs seem to be increasing the usage of their broker channels with the 43.2% of loans originated by third parties the highest proportion since June 2008.  
With 3.5% of new mortgages approved outside of serviceability over the September 2014 quarter, this was down from a record high 3.7% over the previous quarter.
<img class="aligncenter size-full wp-image-4046" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-6.jpg" alt="Chart 6" width="500" height="180">
Looking at the loan to value ratios (LVR) of loans written over the September 2014 quarter,  25.2% of new loans had an LVR of less than 60%, 41.8% of loans had an LVR of between 60% and 80%, 20.9% had an LVR of between 80% and 90% and 12.1% had an LVR of 90% or more. 
The 12.5% of new loans with an LVR of more than 90% is the lowest proportion since June 2011.  The 25.2% of mortgages with an LVR lower than 60% was the highest proportion in a year. 
This falling proportion of loans above 90% LVR suggests there are proportionally less high-risk mortgages being written.
The data indicates that overall interest-only lending is continuing to rise however, new lending of this type has eased of late. 
Investment lending remains high and continues to ramp-up however, the rate of growth in new lending to investors does appear to have slowed.  Keep in mind that the December data will probably tell us much more given it encapsulates more of the spring selling season. 
Furthermore, after the RBA flagged that they and other regulators are looking at ways to cool investor exuberance with an announcement expected in December we may actually see a run on investor lending over the coming quarter.
It is of course important to remember that although investment lending has ramped up sharply over the past year, there is little to suggest that lending to investors is more risky than lending to owner occupiers.  Bill Evans provided some insight into Westpac’s investment lending late last week.  He noted:
<ul>
<li>Compared to owner–occupier applicants, investment applicants are older (75% over 35 years); have higher incomes and higher credit scores.</li>
<li>65% of investment loan customers are ahead on their repayments and 90+ days delinquencies are 0.37% compared to 0.47% for the full housing portfolio.</li>
<li>Westpac has an interest rate buffer approach to lending linking loan approvals to serviceability at a rate at least 180 basis points above the standard mortgage rate (5%).</li>
<li>All investment loans are full recourse and specific policies apply to holiday apartments and single industry towns.</li>
</ul>
<img class="aligncenter size-full wp-image-4047" src="https://blog.corelogic.com.au/wp-content/uploads/2014/11/Chart-7.jpg" alt="Chart 7" width="500" height="315">
Our concern about the high level of investment lending remains over the fact that investors are targeting the residential property asset class because of its superior returns.  While these returns remain superior demand is likely to persist. 
The concern then arises when other investment classes start to show superior returns will these owners exit the residential property class or remain in it for the long-term? 
As the above chart shows, investor activity is heavily concentrated within the capital city inner-city unit market.  Were many investors to exit the market at a similar time in search of superior returns that could have some serious repercussions for the inner city unit market and potentially the wider housing market too.
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Will investors desert residential property when returns start to dry up?

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According to CoreLogic RP Data's November figures, home price growth is slowing.
<a href="https://www.propertyobserver.com.au/https://twitter.com/cmkusher/status/539223795421421568" target="_blank"><img src="/images/2014/12/01/tweet-dec-1-one.jpg" alt=""></a>
Australian capital price growth was 8.5% higher in last month than in November 2013. While CoreLogic RP Data research analyst Cameron Kusher deemed the year on year growth "healthy", he also noted it was down from the previous peak of 10.5%, recorded in April this year.
Given household annual household income growth has also slowed this year, Kusher is unsurprised at the result.
 
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jrichardson-uRX5hFdKfN

Tweet of the day: Slowing price growth linked to disposable incomes?

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Australia’s property market has experienced a significant shift in lower-end priced properties. The selection for properties under the $400,000 mark is diminishing.  
Rising capital city dwelling values has meant that homes selling at a price below $400,000 has declined and is now down to 39.7% of all sales from 44.1% a year earlier.  
<img src="/images/2014/11/28/kiusher-nov-28-one.jpg" alt="">
Over the 12 months to August 2014, 37.3% of houses and 45.7% of units sold for less than $400,000.  At the same time a year earlier, 42.3% of houses and 48.5% of units sold for less than $400,000.  
Until 2004 the proportion of sales below $400,000 was fairly similar between houses and units.  Since that time the proportion of sales below $400,000 has trended lower however, the rate of decline has been greater for houses than for units.  
<img src="/images/2014/11/28/kiusher-nov-28-two.jpg" alt="">
This significant divergence in individual capital city home values and growth over recent years has also meant a large difference in the proportion of homes selling below $400,000.
Over the past year, the proportion of all house sales occurring below $400,000 has been recorded at: 
<ul>
<li>12.1% in Sydney;</li>
<li>25.1% in Melbourne;</li>
<li>32.4% in Brisbane;</li>
<li>47.9% in Adelaide;</li>
<li>15.3% in Perth;</li>
<li>62.8% in Hobart;</li>
<li>18.5% in Darwin;</li>
<li>7.5% in Canberra.    </li>
</ul>
20 years ago, more than nine out of every 10 house sales across each capital city were below $400,000. Of course over that time wages have increased, interest rates have tended to be much lower and credit has become much more freely available. Nevertheless, the drop in affordable housing across most capital cities has been substantial.  
Across the capital cities, the proportion of total unit sales below $400,000 over the past 12 months was: 
<ul>
<li>23.5% in Sydney;</li>
<li>37.3% in Melbourne;</li>
<li>53.8% in Brisbane;</li>
<li>67.8% in Adelaide;</li>
<li>38.2% in Perth;</li>
<li>82.9% in Hobart;</li>
<li>32.0% in Darwin;</li>
<li>39.0% in Canberra.    </li>
</ul>
Again 20 years ago almost every unit sold was less than $400,000.  While there has been a decline in unit sales under $400,000 across the board it has been markedly larger in markets like Sydney, Melbourne, Darwin and Canberra.  
Dwelling sales data produced by CoreLogic RP Data showed that over time, houses continued to outnumber units. This is the reason why house sales have a bigger influence on the overall result.    
Options for affordable housing supply, particularly in cities such as Sydney, Melbourne, Perth, Darwin and Canberra have sharply reduced over the past two decades.
<img src="/images/2014/11/28/kiusher-nov-28-three.jpg" alt="">
 
Although borrowing for a mortgage has become easier and wages have grown, the supply of lower priced homes drives many lower income earners out of ownership in these cities.
As an example, current figures to the 12 months to August 2014 indicate there has been just 16,345 homes sold below $400,000 in Sydney compared to 97,982 home sales in total. 
With home values continuing to rise in Sydney and Melbourne, we would expect even fewer sales below $400,000 over the coming 12 months. 
<img src="/images/2014/11/28/kiusher-nov-28-four.jpg" alt="">
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Pool of affordable housing in capital cities continues to evaporate

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According to the CoreLogic RP Data Home Value Index results in October 2014, combined capital city home values have increased by 8.9% over the past year. 
The rate of growth is now decelerating after reaching a peak annual growth rate of 11.5% in April 2014.  The two cities which have been the real driver of value growth, Sydney and Melbourne, are also now seeing the rate of value growth slowing.
The RBA has previously stated that as the economy transitions away from mining investment that it was specifically looking for a pick-up in residential property.  To date there has been a pick-up, in buyer demand, as well as home values and dwelling construction however, with value growth having peaked and dwelling approvals now -15% lower than their recent monthly peak will the pick-up in the residential segment of the economy be enough to offset mining?  It is beginning to look increasingly unlikely.
As we have showed, the residential housing sector is still quite strong but is slowing from its peak.  Although approvals have dropped there remains a strong pipeline of housing construction which should continue over the coming years however, the spike in construction could be somewhat short-lived overall.  If we look at the other sectors of the economy, economic data appears to be increasingly turning more negative than positive.
According to Westpac and the Melbourne Institute, consumer sentiment has been mired in higher levels of pessimism than optimism for the past nine months.  The last time pessimism had outweighed optimism for this long was in the middle of the financial crisis.
Last week we learned that wage growth remains benign.  According to the Australian Bureau of Statistics (ABS) the wage price index has increased by just 2.6% over the year to September 2014.  With inflation recorded at 2.3% there is very little real growth in wages at the moment.
With wage growth so low, we are also seeing the highest unemployment rate the country has seen in more than decade.  According to ABS data, the unemployment rate was recorded at 6.2% in October and sits at a level not seen since early 2003.  If employees can’t negotiate a decent pay rise it is not as if businesses are actively seeking employees.
Commodities, which were previously a key driver of the Australian economy have seen prices drop significantly over the past year.  According to the Reserve Bank’s (RBA) monthly index of commodity prices, Australian commodity prices are -16.9% lower over the past year and -38% lower than their July 2011 peak.
Earlier this year Australia had recorded international trade surpluses for three consecutive months.  The monthly trade surplus reached as much $1.4 trillion however, in September the trade deficit had sunk to $2.3 trillion.  This $2.3 trillion figure was the largest monthly trade deficit since November 2012.
According to the National Australia Bank, business conditions have improved sharply.  Their index of business conditions rose by an all-time high 12 points in October to reach its highest level since February 2008.  Although business conditions may be up, confidence across the business sector continues to fall.  In October business confidence fell by a point to its lowest level since August of last year.
Retail trade recorded a somewhat surprising bounce of 1.2% in September.  Although this was the strongest monthly increase since February last year it comes following relatively light increases of 0.7%, 0.4% and 0.1% over the previous three months.  One wonders if it is an outlier. 
In fact, Westpac and the Melbourne Institute asked respondents to their consumer sentiment survey about their spending intentions this Christmas.  The survey results indicated that 38% of respondents were going to spend less and 50% were going to spend the same.  Westpac reported that the net balance (more minus less) of -26% was the worst since 2008 in the middle of the financial crisis.
The latest read on population growth shows that population growth is slowing.  Although growth in the number of new Australians remains strong, population growth over the year to March 2014 was at its lowest level since the year to June 2012. 
Furthermore, the more up-to-date overseas arrivals and departures shows that net long-term and permanent arrivals over the 12 months to September 2014 were at their lowest level since the 12 months to October 2011.  This data would indicate a further slowing of net overseas migration, particularly within the mining states where the slowdown in both overseas and interstate migration has been the most substantial.
The strong rate of population growth has been a significant driver of gross domestic product.  Over the 12 months to June 2014, the Australian economy grew by a quite healthy 3.1%.  Although this headline figure is quite good, on a per capita basis the economy grew by a much lower 1.6%. With population growth slowing we would expect GDP per capital to also slow.
While there are a lot of negatives here, one of the positives recently has been the declining Australian dollar.  At the end of October 2014 the exchange rate with the $US was 88 cents which is much lower than it has been of late.  A lower Australian dollar should help our manufacturers, exporters and tourism however, that will take a while to flow through.
With the housing market and housing approvals seemingly topping out we need some other industries to help with the heavy lifting as commodity prices remain low and the pipeline of larger infrastructure projects related to the resources sector continue to taper away. 
We aren’t sure who or what these industries are but a further devaluation of the Australian dollar would certainly help some of the prime candidates such as tourism, manufacturing and education for overseas students. 
The Reserve Bank has stated that monetary policy has largely done all it can to assist and now it’s up to the government to manage fiscal policy in such a way that can assist the transitioning economy. 
In my mind this can’t come quick enough because the economy is softening and the housing market needs help to manage this transition.
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Cameron Kusher

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