Longstanding Gold Coast and Canberra developer <a href="https://www.apartments.com.au/developers/morris-property-group">Morris Property Group</a> is continuing to roll on with its Glitter Strip apartment pipeline, seeking to return to Mermaid Beach with a new 68-apartment development.

Morris, founded by Barry Morris in 1978 and one of the Gold Coast’s most prolific apartment developers over the past two decades, has filed plans for a 12-storey mixed-use building at <a href="https://www.apartments.com.au/new-apartments/36-seabeach-avenue-mermaid-beach-qld-4218">34-36 Seabeach Avenue</a>, on the prized eastern side of the Gold Coast Highway.

The 1,227 sqm site occupies a prominent corner position at Seabeach Avenue and the Gold Coast Highway, opposite the Mermaid Plaza retail and office precinct and around 140 metres walking distance from the future Mermaid Beach South light rail station.

<a href="https://www.apartments.com.au/architects/fraser-partners-0">Fraser &amp; Partners</a> has designed the project, which will comprise 68 apartments across a mix of 48 two-bedroom and 20 three-bedroom residences.

The building will rise 12 storeys, reaching a maximum height of 36 metres, with the apartments accounting for a total of 156 bedrooms. The development application also seeks approval for short-term accommodation across the 68 apartments, while two office tenancies are proposed at ground level.

The plans show 108 car spaces across the development, with parking accommodated at ground level and within a three-level basement accessed from Seabeach Avenue.

<img alt="Seabeach Avenue and the Gold Coast Highway" data-entity-type="file" data-entity-uuid="c2175c99-12fd-4a3c-9be1-89bbf258a90d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-20%20at%202.59.41%E2%80%AFPM_0.png?VersionId=iNLzWcE6gaAE76rafhEXfHve.4g4Se0p" />

Resident amenity will be concentrated on level two, where Fraser &amp; Partners has designed a recreation deck with a swimming pool, 90 sqm pool terrace, outdoor barbecue area and gym.

The broader communal offering will also incorporate landscaped spaces, with the planning documents noting the amenity has been designed to provide areas for recreation, social interaction and outdoor living.

The proposal would continue the transformation of the Gold Coast Highway corridor through Mermaid Beach ahead of the arrival of the light rail.

The site is zoned Neighbourhood Centre and sits within the Mermaid Beach/Broadbeach Light Rail Corridor neighbourhood plan. While the prescribed building height is 24 metres, the site is identified within an Urban Neighbourhood context providing for a 50 per cent height uplift to 36 metres.

Planning documents describe the stretch of the Gold Coast Highway between Broadbeach and Nobby Beach as increasingly characterised by medium and high-rise development, with the proposed Morris tower joining projects including Ventura, The Alfred, Oceans and Otto.

<img alt="Seabeach Avenue and the Gold Coast Highway" data-entity-type="file" data-entity-uuid="911f193f-e381-4a55-be08-58be87fcf978" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-20%20at%202.59.48%E2%80%AFPM.png?VersionId=oxVvLJaY.SOXEdXrIcogfyEXDfvCmmpM" />

The development would mark Morris Property Group's latest investment in Mermaid Beach, where it has already delivered two apartment projects.

Otto, at 1 Bondi Avenue on the western side of the Gold Coast Highway, comprises 70 apartments across nine storeys. The project was completed in 2019 and includes a residents' gym, recreation deck and swimming pool.

Morris also developed Oceans at 46 Ocean Street, a nine-storey, 70-apartment build-to-rent development completed in 2019. Oceans was the group's first build-to-rent project and incorporates commercial space at ground level.

The two existing Morris projects sit further north along the same Gold Coast Highway corridor as the proposed Seabeach Avenue development. Fraser &amp; Partners' planning analysis specifically identifies both Otto and Oceans among the established built-form precedents surrounding the site.

<img alt="Seabeach Avenue and the Gold Coast Highway" data-entity-type="file" data-entity-uuid="14925119-7b71-4812-8149-340317512c7c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-20%20at%203.00.15%E2%80%AFPM.png?VersionId=aEJqYuw_nTCjcin17BSD0piB1EFotTlj" />

Mermaid Beach represents only part of Morris' considerable Gold Coast footprint.

The family-owned developer has been particularly active in neighbouring Broadbeach, delivering projects including Sierra Grand, Eclipse, Synergy, Qube, Koko, Opus and Malo, while its current pipeline includes Maison and the two-tower Crest development.

Further south, Morris has also developed a string of projects in Burleigh Heads, including Element, Boardwalk and Sandbar, while Essentia expanded its footprint north into Surfers Paradise.

The Seabeach Avenue application has been lodged by PMM Broadbeach Pty Ltd and seeks a development permit for a Material Change of Use for multiple dwellings, short-term accommodation and office uses. Zone Planning Group prepared the planning application, with Fraser &amp; Partners commissioned as architect.

The project comes as the developer continues to expand its Gold Coast pipeline while retaining a significant presence in Canberra. Morris now has more than $2.5 billion of development in its national pipeline and has delivered more than 7,000 homes during its near five-decade history

Joel Robinson

First look: Morris Property Group returns to Mermaid Beach with new Seabeach Avenue apartment development

<a data-saferedirecturl="https://www.google.com/url?q=https://www.apartments.com.au/developers/fortis&amp;source=gmail&amp;ust=1787272340808000&amp;usg=AOvVaw3hvFB2uWTRfEyEcpTSnnK9" href="https://www.apartments.com.au/developers/fortis" target="_blank">Fortis</a>&nbsp;is continuing its stronghold on Sydn​ey’s eastern suburbs apartment market, launching&nbsp;in September&nbsp;its latest boutique&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://www.apartments.com.au/developments/double-bay-nsw-2028&amp;source=gmail&amp;ust=1787272340808000&amp;usg=AOvVaw0GI5S9-wNeiLUnM-d1uYkw" href="https://www.apartments.com.au/developments/double-bay-nsw-2028" target="_blank">Double Bay</a>&nbsp;development,&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://www.apartments.com.au/new-apartments/55-william-double-bay-55-william-street-double-bay-nsw-2028&amp;source=gmail&amp;ust=1787272340808000&amp;usg=AOvVaw2YNouJQcFjiTTgVHbgDLA-" href="https://www.apartments.com.au/new-apartments/55-william-double-bay-55-william-street-double-bay-nsw-2028" target="_blank">55 William</a>.

55 William presents&nbsp;just eight north-facing&nbsp;two-bedroom, three-bedroom and full-floor&nbsp;residences to the market, priced from $4.5 million.

The upcoming launch comes just weeks after Fortis secured approval for the $80 million development, its third eastern suburbs approval in two months. Construction is already underway, with completion targeted for 2028.

[smartcode_project:default project_id=152579 project_image_fid=376250]

55 William adds to a growing concentration of Fortis projects in and around Double Bay, a market the developer has become increasingly active in over recent years.

Fortis previously completed the nine-residence Marmont on New South Head Road, while it is currently developing a mixed-use residential and retail project at 12 Cross Street. Its wider Double Bay footprint also extends into commercial and retail development.

The developer's broader Sydney residential pipeline is particularly concentrated across the eastern suburbs, with projects spanning Doub​le Bay, Ro​se Bay, Wo​ollahra, Dar​ling Point, Poi​nt Piper and Eli​zabeth Bay.

[smartcode_project:default project_id=152579 project_image_fid=376253]

At 55 William, Fortis has again turned to MHN Design Union, the architecture practice behind several of its eastern suburbs projects, while London-based 1508 London has been appointed to handle the interiors and Wyer &amp; Co the landscaping.

The six-level building will comprise a combination of two and three-bedroom apartments, including a garden residence, full-floor apartments, a sub-penthouse and penthouse. Each residence will have secure basement parking and private outdoor space.

A rooftop terrace for all residents, along with select apartments, enjoys views across Double Bay Harbour and toward the Sydney skyline.

Ceiling heights will reach up to three metres&nbsp;in select residences, while the kitchens will feature natural stone and integrated Gaggenau appliances.

&nbsp;

&nbsp;

The boutique nature of the project reflects the type of stock Fortis has increasingly targeted across Sydney's eastern suburbs, where larger apartments and smaller buildings are being pitched primarily toward local owner-occupiers and downsizers.

Fortis Group General Manager Ed Eve said the developer continues to see demand from buyers wanting to remain in the eastern suburbs but move into newer, lower-maintenance housing.

“We're seeing continued demand from local owner-occupiers and downsizers looking for high-quality homes that allow them to remain in the eastern suburbs, close to the lifestyle and community they know,” Eve said.

55 William is also one of the early projects to respond directly to the NSW Government's Low and Mid-Rise Housing reforms. Fortis had previously secured approval for just two townhouses on the 599 sqm site before revising the scheme to eight apartments following the planning changes.

Situated one street back from Double Bay's water's edge, the project enjoys an enviable harbourside setting within walking distance of Double Bay Village and the ferry wharf.

[smartcode_project:default project_id=152579 project_image_fid=376252]

Fortis has increasingly made the eastern suburbs a major focus of its Sydney pipeline. Beyond Double Bay, it recently completed the 14-residence Piper in Point Piper and has projects underway or planned across Rose Bay, Woollahra and Darling Point.

The developer recently secured approval for Verano in Rose Bay, a six-level development comprising 21 two, three and four-bedroom apartments, also designed by MHNDU.

55 William&nbsp;is soon to be release to the market with VIP appointments commencing early September,&nbsp;with residences priced from $4.5 million.

[smartcode_project_cta:default project_id=152579]

Fortis continues eastern suburbs push with 55 William launch

UAE-based developer Arada has unveiled plans for a $2 billion twin-tower apartment development in Broadbeach, marking its first move into Queensland as it continues its rapid expansion across Australia.

Arada will develop 952 apartments across two towers on a prominent site opposite the Gold Coast Convention and Exhibition Centre, with the project targeted for completion ahead of the Brisbane 2032 Olympic and Paralympic Games.

The project represents Arada's largest commitment to the Australian market since arriving in the country in 2024 and significantly expands a local pipeline that has now grown to eight projects and more than 5,000 homes.

It will also be the first major Queensland project delivered by Roberts Co since the tier-one contractor was acquired by Arada Group in 2025.

Plus Studio has designed the Broadbeach development, which will comprise one, two and three-bedroom apartments across two towers connected by a landscaped podium.

A significant resident amenity offering will include lagoon and lap pools, a gym, sauna and steam room, alongside a mist room, infrared room and salt scrub facilities. Communal terraces, private dining areas, a library, residents' lounge and work-from-home spaces are also planned. Around 1,200 sqm of retail and hospitality space will occupy the ground floor.

The site puts Arada in one of the Gold Coast's most active apartment markets, directly opposite the convention centre and within walking distance of Pacific Fair, The Star Gold Coast and Broadbeach's dining and retail precinct.

It also has immediate access to the Gold Coast light rail network and sits just a few blocks from the beach.

Arada Group Chief Executive Ahmed Alkhoshaibi said Broadbeach represented an opportunity for the developer to expand beyond its initial NSW pipeline.

“Broadbeach is a world-class address that gives us the canvas to create a community of exceptional design and lifestyle quality that genuinely enriches the daily lives of the people who call it home,” Alkhoshaibi said.

“This is our first development outside New South Wales, and it reflects our growing ambition to grow in key urban markets around the country.”

Alkhoshaibi said bringing Roberts Co into the project would give Arada greater control over the development and construction process.

“Delivering this project through Roberts Co, our own tier-one construction business, means we can bring the quality, pace and accountability that our buyers expect.”

The move into Broadbeach comes as Arada accelerates its Australian expansion following its entry into the market two years ago. The developer has assembled a pipeline of eight projects comprising more than 5,000 homes, while the acquisition of Roberts Co last year gave the group its own Australian construction capability.

Globally, Arada has a development portfolio valued at $50 billion comprising more than 55,000 homes across the UAE, United Kingdom and Australia.

The Gold Coast is emerging as the next major market for the developer, with strong population growth and infrastructure spending ahead of the 2032 Games continuing to underpin significant apartment development across the coastal strip.

Arada plots $2 billion Broadbeach towers in major Queensland move

Sydney’s downsizer market is changing, with a growing cohort of buyers prioritising the right home over simply finding a smaller one.

Coronation Property Head of Sales Cam Porter says the traditional idea of downsizing does not necessarily reflect what many buyers are now looking for, particularly those moving from established family homes across Sydney.

Instead, he says they are increasingly becoming “right-sizers”, seeking lower-maintenance homes without sacrificing the space, amenity or quality they have become accustomed to.

“We are increasingly seeing buyers who are not motivated by the idea of simply moving into a smaller property,” Porter says.

“They are right-sizers. They want a home that is easier to manage and better connected, but they still expect generosity, quality and a floorplan that supports the way they live.”

It is a subtle but important distinction in a market where apartment developers are increasingly targeting established owner-occupiers.

[smartcode_project:default project_id=135149 project_image_fid=377495]

For many of these buyers, moving from a house to an apartment is not driven by a desire to dramatically reduce their living space. Instead, the appeal is in removing some of the maintenance associated with a larger home while retaining generous living areas, storage and enough flexibility to accommodate family and friends.

Coronation’s sales team is seeing buyers place particular importance on natural light, practical storage and additional rooms that can be used as guest bedrooms, home offices or secondary living spaces.

Kitchens and dining areas are also playing an increasingly important role, particularly for buyers who regularly entertain or have children and grandchildren visit.

[smartcode_project:default project_id=135149 project_image_fid=377494]

“These buyers still want their home to feel generous,” Porter says.

“They may want less maintenance, but they are not looking for less life.”

The challenge for the broader housing market is providing enough of the right stock to encourage that move.

While much of the discussion around Sydney’s housing shortage has centred on the number of homes being delivered, Porter says the diversity of those homes is equally important.

Older homeowners can remain in large family houses for longer when they cannot find an appropriate alternative in the neighbourhoods where they have built their lives.

“The decision is rarely as simple as wanting fewer bedrooms,” Porter says.

“People are weighing up their connection to a neighbourhood, the space they need for family, the quality of the home and whether it will continue to work for them over the long term.”

It also has implications beyond the downsizer market. Providing suitable apartments for smaller households can free up established houses for families who need the additional bedrooms and land, creating greater movement through the housing market.

<h2>Lillian targets the next stage of apartment buyer</h2>

It is a buyer Coronation is targeting at <a href="https://www.apartments.com.au/new-apartments/lillian-erskineville-9-metters-street-erskineville-nsw-2043">Lillian</a>, its new collection of apartments, terraces and penthouses at Erskineville Village.

Designed by Silvester Fuller, Lillian has been shaped around larger living spaces, natural light and flexible floorplans, alongside landscaped areas, wellness amenity and communal spaces for residents.

The development will form part of Coronation’s broader Erskineville Village precinct, which will combine new homes with green space, retail, hospitality and new pedestrian connections.

[smartcode_project:default project_id=135149 project_image_fid=377688]

McPherson Park will sit at the centre of the precinct, creating a significant new green space alongside the project’s retail and hospitality offering.

For Porter, the opportunity is to give buyers another housing option without forcing them to leave the part of Sydney they already know.

“People should be able to change the type of home they live in without having to change their entire life,” he says.

“For many buyers, Lillian offers the opportunity to remain connected to the Inner West and the city, while gaining access to a more convenient, walkable and considered way of living.”

[smartcode_project:default project_id=135149 project_image_fid=377687]

Coronation will explore the changing <a href="https://lillianresidences.com.au/news/lillian-x-space-x-downsizers-event-27-august/">right-sizer market at an event on August 27</a>, bringing together experts across property, design and lifestyle.

Held in partnership with SPACE, Poliform and Downsizer.com.au, the event will include a property market outlook from economist Michael Blythe alongside discussion around the considerations facing buyers planning their next move.

Attendees will also be able to learn more about the residences and amenity planned at Lillian Erskineville.

[smartcode_project_cta:default project_id=135149]

From downsizing to right-sizing: What Sydney buyers want from their next home

Family-owned builder and developer <a href="https://www.apartments.com.au/developers/omaya">Omaya</a> is bringing its 27-storey The Maybelle development to market, with the 229-apartment tower rising alongside Ismay Reserve near North Strathfield.

<a href="https://www.apartments.com.au/new-apartments/the-maybelle-21-parramatta-road-homebush-nsw-2140">The Maybelle</a> will comprise one, two and three-bedroom apartments, with its height providing elevated outlooks towards the Sydney skyline and Harbour Bridge, while other residences will look across neighbouring Ismay Reserve.

Designed by <a href="https://www.apartments.com.au/architects/squillace-architects">Squillace Architects</a>, the tower combines its parkside setting with proximity to the established retail, dining and transport amenity around North Strathfield.

[smartcode_project:default project_id=134873 project_image_fid=376196]

Residences will feature open-plan living spaces and a choice of two interior schemes, while communal amenity is spread across two elevated levels of the building.

Level 8 will be home to the Garden Pavilion, a full-floor resident space incorporating communal entertaining and breakout areas, seating and recreation spaces. Further up the tower, a landscaped Sky Terrace on Level 14 will provide another communal area with panoramic views towards the Harbour Bridge and Sydney skyline.

At ground level, the development sits directly alongside Ismay Reserve, where lawns, walking paths, children's play areas, picnic spaces and recreational facilities extend the green space available immediately around the project.

[smartcode_project:default project_id=134873 project_image_fid=376194]

The Maybelle is also within walking distance of North Strathfield and the Bakehouse Quarter, which provides a mix of cafés, restaurants, shops and everyday services.

Existing rail and bus services provide connections across Sydney, while the future North Strathfield Metro and access to the M4 will add to the transport options available around the precinct. Walking and cycling routes also extend via Powells Creek towards Sydney Olympic Park and its sporting, entertainment and parkland precincts.

Families are also well positioned for access to a broad selection of established schools and education options across Strathfield and the surrounding Inner West.

[smartcode_project:default project_id=134873 project_image_fid=376181]

Omaya has operated in Sydney for more than 35 years, managing projects from acquisition and design through to construction and delivery. The family-owned company is both developer and builder of The Maybelle.

Apartments start from $560,000, with the development protected by 10-year Latent Defects Insurance.

Construction is well underway, with completion expected by the end of 2026 and move-in anticipated from Q1 2027.

[smartcode_project_cta:default project_id=134873]

The Maybelle brings 27-storey parkside tower to market near North Strathfield

Investor Lending

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In the first quarter of 2016 the Australian Labor Party (ALP) announced as part of its 'positive policies' manifesto that if elected it planned to wind back certain tax benefits for property investors.  
 
At that point, investor housing finance was down 22 percent year-on-year at just $10.8 billion, following on from APRA's cooling measures. 
 
Predictably enough, since that time, to the extent that at $13.8 billion total monthly investor loans are now 28 percent higher than a year earlier. 
<a href="https://www.propertyobserver.com.au/images/2017/03/14/A1.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/14/A1.jpg" alt="">
Tax was far from the only factor in play, of course. 
Experiences in the UK showed that when new lending rules are implemented, borrowers can take a little time to get to grips with the new criteria, before adjusting course accordingly. 
And then there was the interest rate cut on May 4, with borrowers - correctly as it turned out - anticipating that interest rate cuts are rarely delivered as a lone wolf. 
Another cut followed on August 3 and then investor loans were really off to the races. 
Further measures
It's tempting to argue that the market should just be left to sort itself out, and in some areas it already has.
When there are more rentals than willing tenants, then in time rents fall, vacancy rates rise, and owning an investment property naturally becomes are less than attractive proposition. 
But while it's common to see a high level of investor interest in the inner capital cities where rental demand is high, even far out into the suburbs and the traditional homebuyer heartlands there seems to be an unnaturally high number of investors perusing the market, which is both unhealthy and unsustainable. 
There is presently some talk of the incumbent Coalition making changes to the capital gains tax (CGT) legislation, but overall the government doesn't seem to be planning much in the way of cooling the housing market.
Meanwhile, the economy generally isn't in sound enough condition for markets to believe that the Reserve Bank will be hiking the cash rate any time soon.
It seems most likely that further measures will come via the regulator as 2017 rolls on, and will perhaps be manifested in higher mortgage rates for investors, or tougher qualifying criteria for investor loans, or both. 
 
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/">blogger</a>.
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx">Four Green Houses and a Red Hotel</a>.
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pwargent-M4siyDbqQY

Investor lending has come storming back: Pete Wargent

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It was interesting - if a little alarming - to hear Shadow Treasurer Bowen this week noting that there was "no evidence" that investors are rushing in to the market in order to beat proposed changes to tax legislation relating to property.
It's unclear if the ALP just doesn't 'do' liaison with the real estate industry or whether this was a natural response to downplay a mildly accusatory question.
A huge number of investors I speak to are unsurprisingly concerned about prospective changes to tax legislation, and as such many are aiming to buy as much property as soon as they can.
This can be a problem with flagging future shifts in tax legislation well in advance, as we have also seen in Victoria over the past fortnight. 
Regardless of the political debate, it's on, and regulators may need to step in again later in the year. 
Housing finance surges on
The ABS reported the January housing finance figures on Friday morning which showed the value of investor lending tearing 28 per cent higher year-on-year.
So there's the evidence, lest anyone really needed it. 
Another surge in investor lending took total housing finance to comfortably its highest ever level both in seasonally adjusted and trend terms in the month January 2017. 
<a href="https://www.propertyobserver.com.au/images/2017/03/13/A1.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/13/A1.jpg" alt="">
One point that should be acknowledged is that these are January figures, and some steps have since been taken by lenders to cool the investment lending sector.
On this evidence, it's likely that more tweaks will be needed.
On a national basis, the monthly figures for the homebuyer market were relatively flat. 
Loan sizes can sometimes be lower in January, yet even in seasonally adjusted terms the value of owner-occupied housing commitments was down a notch in the month (-0.2 percent), despite an uptick in the number of loans.  
<a href="https://www.propertyobserver.com.au/images/2017/03/13/A3.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/13/A3.jpg" alt="">
Homebuyers around the traps
The national figures for owner-occupier commitments are being pulled down by Western Australia, where the number of commitments has been in a long downtrend from November 2013 (7,729) all the way through to January 2017 (5,803). 
<a href="https://www.propertyobserver.com.au/images/2017/03/13/A5.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/13/A5.jpg" alt="">
It's a similar story for the value of owner-occupier commitments in WA, which have dropped from $2.42 billion in 2014 to $1.94 billion. 
Finally, the average first homebuyer loan size was generally also a little lower over the Christmas period. 
<a href="https://www.propertyobserver.com.au/images/2017/03/13/A2.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/13/A2.jpg" alt="">
I'll take a look on Wednesday next week at where the investors are buying, but I can save you the suspense because the answer is Sydney and Melbourne.  
<a href="https://www.propertyobserver.com.au/images/2017/03/13/A4.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/13/A4.jpg" alt="">
The wrap
Housing finance continues to scale new monthly peaks, and the figures for investment lending will do little to quell the belief that APRA will be tapping on the shoulders of a few more lenders as this year progresses. 
That said, today's figures were for January and the most widely reported figures are seasonally adjusted, so there will be lots of attention directed at the next two months of data. 
 
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank">Four Green Houses and a Red Hotel</a>.
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Investors rush to beat potential tax changes: Pete Wargent

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Commonwealth Bank’s half-year earnings have put it firmly on course for a record $10 billion profit for the full year, even though the lender recently restricted loans to refinancing for investors.
The bank’s profit rose 6 per cent to $4.9 billion in the first half, of which half came from the retail banking side, which is where the home loans are concentrated.
The bank advanced 140,000 new home loans, including 15,000 for first home buyers, it said in a media release.
On the recent move to restrict refinancing of investor loans to new customers, CBA chief executive Ian Narev told 2GB’s Ross Greenwood that the lender crossed the APRA’s 10 percent growth cap for lending to investors for the year and had to be peg it back.
“We went over the limit and we made it quite clear we went over the limit…we just had to take a couple of steps to make sure we remain within that regulatory limit,” said Narev.
Australian Prudential Regulation Authority chairman Wayne Byres had said late in 2016 that bank stability had been well served by the 10 per cent growth cap imposed on bank investor loan portfolios, with actual rates of growth around half that rate. 
On increasing interest rates for investor-only loans, Narev said rates are independent of the results, “simply because it responds to a regulatory requirement to keep our lending growth in investor loans below 10 pct a year”.
When pressed further about stopping refinancing of investor loans, he said the bank’s “No. 1 priority is that we’re there for existing customers” and that CBA is just “trying to be prudent in this environment”. He said new investor loans for refinancing wouldn’t be done through the broker channel.
The group’s statutory net profit after tax (NPAT) for the half year ended 31 December was $4,895 million, a 6 per cent increase on the prior comparative period. Cash NPAT was $4,907 million, an increase of 2 per cent on the prior comparative period. 
Its Board has announced an interim dividend of $1.99 per share, a 1 cent increase on the 2016 interim dividend. The interim dividend, which will be fully franked, will be paid on 4 April 2017 with the ex-dividend date being 22 February 2017. 
According to The Australian, CBA will be the second company in Australia to report a $10 billion profit for a year. Mining giant BHP reported $US15.9 billion in 2012.
In operating income terms, retail banking reported $3.9 billion in the first half, followed by business and private banking at $1.2 billion.
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CBA lending just to its own customers after investor lending exceeded APRA directive

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There was plenty of news in Australia this week.
The influential NAB Monthly Business Survey had a smiley face (literally) on it for the first time since mid last year, with the index up 5 points to +11.
Business confidence itself was unchanged at +6.
It reported that there had been “a reprieve from the steady moderation in business conditions seen late last year”.
Yet retail, manufacturing and mining performed poorly, with wholesale picking up the slack. Retail was now the weakest sector in the survey.
Translation: consumer confidence is bad. And when you think that consumer spending accounts for nearly 75% of GDP that is certainly cause for concern.
Private sector credit was up 0.7% in December for a 5.6% annual rate of growth, according to the Reserve Bank.
How does one square that with my claims about consumer confidence?
Easy, the credit expansion was chiefly due to a growth in investor loans, which were up at an annual rate of 6.2%.
In fact, over the last three months that rate was edging toward the Australian Prudential Regulatory Authority “speed limit” of 10% – coming in about 1% below.
This raises thorny questions for APRA. Does it impose tighter constraints on banks lending to investors – like even higher deposit requirements?
What if growth goes over 10% – do they shift the goalposts?
<a href="https://www.propertyobserver.com.au/images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.54.53%20pm.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/07/Screen%20Shot%202017-02-07%20at%2012.54.53%20pm.jpg" alt="">
We are used to thinking of central banks as having to perform a balancing act with monetary policy where they don’t let the economy get too hot or too cold, and have to be worried about an interest rate rise causing a sharp contraction/recession.
Perhaps APRA faces an analogous, though new, problem.
If it tightens so-called “macroprudential” standards – like deposit requirements – it risks causing a sharp contraction in housing prices.
And that could lead to forced selling, and pretty soon it could amount to a fire sale.
Or, if you like, a macroprudentially-induced housing run.
Australia’s trade surplus came in at a record A$3.51 billion in December, beating estimates of around A$2.2 billion. This seems like good news. And as they say in baseball “you can’t boo a homerun”.
But the record figure came on the back of a sharp rise in commodity prices, once again highlighting how dependent our economy is on cyclical movements in prices of things we dig out of the ground.
And the RBA will not be pleased at the accompanying leap in the Aussie dollar, which surged past US76 cents on the news.
The RBA puts a lot of emphasis on a lower Aussie dollar in that it helps exporters, and US76 cents is getting outside their comfort zone.
Although I have expressed scepticism about their thinking many times before in The Conversation.
Over the pond, the US Federal Reserve kept interest rates steady, in the band of 0.5%-0.75%, after its December hike of 25bp.
In its press release the Fed said, “the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace.
Job gains remained solid and the unemployment rate stayed near its recent low.
Household spending has continued to rise moderately while business fixed investment has remained soft.
Measures of consumer and business sentiment have improved of late.
Inflation increased in recent quarters but is still below the Committee’s 2 percent longer-run objective.”
Other than business investment being soft, that sounds like everything is going according to plan. And so far it is.
But then there is President Trump.
We have yet to see the impact Trump will have on consumer and business confidence, let alone what happens if he starts a series of trade wars.
Or if he convinces Congress to introduce his cash-flow-based tax plan.
I will provide more detail on that in future columns, but it is a dangerous attempt to provide preferable tax treatment for exporters over importers.
It has the very real prospect of causing huge disruption, and a large increase in the prices of many staple goods like textiles and food.
<a href="https://theconversation.com/profiles/richard-holden-118107" target="_blank">Richard Holden</a> is a Professor of Economics and PLuS Alliance Fellow at UNSW and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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j.ballantyne1990-6AQqhLzZaK

Time to shift the goalposts on investor lending again? Richard Holden

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GUEST OBSERVER
The Australian Bureau of Statistics (ABS) released lending finance data earlier today and when it is paired with the earlier housing finance data release, the figures provide insight into the value of mortgage lending over the month in each state and territory. 
Over recent months investor demand for mortgages has been trending higher and this is being largely driven by resurgent investor demand in New South Wales and Victoria. 
Of course the capital cities of these two states have consistently recorded the strongest value growth of all capital cities over the past five years and also have the lowest rental returns.
<a href="https://www.propertyobserver.com.au/images/2017/01/25/chart-1-3.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/25/chart-1-3.jpg" alt="">
The data analysed is based on the value of mortgage finance commitments. 
Given this it is important to consider that more expensive markets (such as NSW) will tend to result in borrowers taking out larger mortgages whereas borrowers in more affordable markets will generally take out smaller mortgages.  More than half of all the mortgage lending to investors in November 2016 was lent in New South Wales and with a further 24.5 percent in Victoria, three quarters of all mortgage lending to investors occurred in the two most populous states.
<a href="https://www.propertyobserver.com.au/images/2017/01/25/chart-2-3.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/01/25/chart-2-3.jpg" alt="">
Looking only at new lending (that is excluding refinances) investors accounted for 56.7% of the value of lending in New South Wales in November 2016.  Looking over the past four years, the value of new lending to investors in New South Wales has been greater than new owner occupier lending for 42 of the past 48 months. 
Victoria was previously seeing slightly more than 50% of new lending to investors but was recorded at 45.0% in November 2016.  Across the remaining states and territories, the proportion of total new lending to investors in November 2016 was recorded at: 39.7% in Queensland, 37.1% in South Australia, 31.0% in Western Australia, 26.1% in Tasmania, 40.3% in the Northern Territory and 38.7% in the Australian Capital Territory.
It’s clear that demand for mortgages from the investor segment is picking up, particularly in New South Wales and Victoria, which are proxies for Sydney and Melbourne respectively.  With a low cost of borrowing and many owner occupiers having seen substantial increases in housing equity in Sydney and Melbourne over the past 4.5 years it is easy to understand why investor demand is rising. 
On the other side of things, you have a value growth phase that has now run for 4.5 years, largely focussed on two major cities and rental returns at historic low levels in these cities.  Investors should be considering the potential risks, especially as housing supply is responding and that the value growth phase is now quite mature.  While many have seen a substantial increase in the value of properties and may continue to do so, at some point growth will slow. 
With record low yields, slow rental growth and additional housing supply entering the market over the coming years, if investors need to start relying on rental returns rather than increase in the asset value, boosting those returns is likely to prove difficult.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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ckusher-ujnxiKuFQs

New lending to investors in NSW has accounted for more than half of all new lending for 42 of the past 48 months: Cameron Kusher

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The "policy approach" to regulatory restrictions on investor lending are limp and ineffectual according to managing director of Market Economics Stephen Koukoulas.
In an opinion piece published in The Guardian, Koukoulas said no sensible observer of the Australian housing market believes the regulators have it “right” when it comes to conditions attached to investor lending.
He said Australian house prices rose at a solid pace in 2016, defying many expectations for moderate price falls, including his own.
"It seems the error of my forecast was to misread the policy approach to regulatory restrictions on investor lending which, as it turned out, was limp and ineffectual," Koukoulas wrote.
"For years, smart people have been arguing for a tightening in prudential controls on lending to cool the housing market.
"The people who regulate the mortgage market have, however, taken only baby steps to address the issue and have failed to cool it. Investor loans have been roaring along since the middle of 2016.
"Some said prices would fall, but dwelling values rose by more than 15 percent and 13 percent respectively in Sydney and Melbourne
"Another important factor behind the resilience in house price growth was the shock interest rate cuts from the Reserve Bank of Australia during 2016 as it reacted to the surprising slump in inflation and wages growth. These low interest rates fuelled extra borrowing capacity, some of which fed into house prices.
"Oversupply from the apartment construction boom, which I also thought would start to bite in 2016, looks to be more of an issue for 2017 even though apartment prices fell in most major cities in the latter part of 2016. Prices for freestanding houses were particularly strong.
"No sensible observer of the Australian housing market believes the regulators have it “right” when it comes to conditions attached to investor lending. Just about anyone with a few assets and a half decent income can get a loan for investment purposes despite the pretence of “tighter” lending conditions. The negative gearing rules only add to such demand.
"While that remains the case and while there is strong demand relative to the growth in housing supply, price pressures will be skewed to the upside.
"With 2016 behind us, there are grounds to think that 2017 could be the year of the great house price moderation. While the Reserve Bank appears to have official interest rates on hold, the sharp jump in bond yields over the past few months is feeding into bank funding costs. This higher cost of funds has already filtered through to higher fixed-mortgage interest rates which, unchecked, will erode housing demand.
"Also acting as a likely dampener for demand is the sponginess in the labour market, with wages growth hovering at record lows, full-time employment sluggish and the unemployment rate high.
"Potential purchasers of dwellings, already constrained by high levels of debt, have only limited ability to add to their leverage, at least in the near term.
"And then there is dwelling supply. Building approvals reached record levels in 2016 and, once those approvals turn into finished dwellings ready for owner-occupiers or renters to move into, there is likely to be excess supply in several major cities. This will, at least in the short to medium term, undermine prices.
"While supply and demand remain the dominant long-run drivers of house prices, interest rate changes, macroeconomic conditions and prudential changes can all have a short-term impact.
"The supply and demand dynamics are pointing to a moderation in house prices, as are changes to interest rates and what looks to be a soft economy with a weak labour market. 2017 is set to be the year of weaker house price growth, perhaps even price falls.
"If the moderation is orderly, without much in the way of forced selling, it will actually be good news for the economy. Some prudential risks will ease, affordability will further improve and the housing market will move towards balance.
"The government and regulators could help to lock this in if they are bold enough to tighten lending and tax rules to reduce some of the investor demand which has, in recent times at least, distorted the market."
To read the original article <a href="https://www.theguardian.com/australia-news/2017/jan/05/why-i-was-wrong-on-house-prices-in-2016-and-why-i-might-still-be-proved-right" target="_blank">click here</a>.
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jonathanchancellor-7SQnKwU6yx

Stephen Koukoulas on the prospect of house price moderation in 2017

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Earlier this week, housing finance data for August 2016 was released by the Australian Bureau of Statistics (ABS). 
Over the month there was $31.4 billion worth of housing finance commitments which was -1.0 percent lower over the month and -5.1 percent lower than it was at its peak in April 2015.
<a href="/images/2016/10/13/chart-1-580x211.jpg" target="_blank">Click to enlarge</a>
<h1 class="title"> <img src="/images/2016/10/13/chart-1-580x211.jpg" alt="">
</h1>
<div class="entry">
The $31.4 billion worth of commitments in August was split between $19.5 billion worth of commitments by owner occupiers and $11.9 billion in commitments to investors.
The value of lending to owner occupiers has fallen over two consecutive months while lending to investors has risen for the fourth consecutive month.  The value of lending to owner occupiers is now -8.6 percent lower than its peak in December 2015. 
Investor lending remains well below its April 2015 peak, down -18.5 percent however, the recent rebound has seen the value of investor lending increase by 10.0 percent from its recent trough in April 2016.
<a href="/images/2016/10/13/chart-2-580x210.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/13/chart-2-580x210.jpg" alt="">
The $19.5 billion worth of mortgage borrowing by owner occupiers was comprised of: $1.8 billion for construction of dwellings, $1.0 billion for purchase of new dwellings, $6.4 billion for refinancing of established dwellings and $10.2 billion for purchase of established dwellings. 
The two largest components of owner occupier lending; refinancing and purchase of established dwellings, have both trended lower over recent months. 
The value of refinance lending is -13.4 percent lower than its peak of $7.4 billion in December 2015 and purchase of established dwellings is -11.2 percent lower than its $11.5 billion peak in September 2015. 
With an interest rate cut which wasn’t passed on in full by most lenders in August, there is a decent probability that refinance activity will increase over the coming months.
<a href="/images/2016/10/13/chart-3-580x211.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/13/chart-3-580x211.jpg" alt="">
For investors there was $11.9 billion in mortgage lending in August 2016, which was split between $0.9 billion in lending for construction and $11.1 billion for established housing. 
The value of lending for construction was at its lowest level since September 2015 and down -49.5 percent from its recent peak of $1.7 billion in March 2016. 
The $11.1 billion in lending for established housing has increased over four consecutive months and is at its highest level since August 2015. 
Housing credit data also highlights the recent up-tick in investor mortgage lending with monthly investor credit data increasing over each of the five months to August 2016.
<a href="/images/2016/10/13/chart-4-580x214.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/13/chart-4-580x214.jpg" alt="">
Focusing solely on new construction which includes owner occupier construction of dwellings, owner occupier purchase of new dwellings and investor lending for construction, there was $3.7 billion in lending in August 2016. 
The $3.7 billion was the lowest value of lending for new housing since September 2015 with lending for new housing having trended lower since March 2016.  Based on this data, only 14.9 percent of the total value of housing finance commitments in August 2016 were for new housing. 
Of the $3.7 billion, 23.1 percent of lending was to investors.
The trends ae emerging whereby demand from the investment segment is increasing again while owner occupier demand is slowing. Although investment demand is lifting, it is not expected to lift to the substantial levels recorded earlier in the current housing cycle. 
The fading demand from owner occupiers reflects that many have already upgraded or downgraded in the current cycle as much as the fact that particularly in Sydney and Melbourne it is probably getting a little harder to justify a move in the context of significant transactional costs. 
When owners look at the cost of upgrading and the market exit cost (agent commission etc) and entry costs (stamp duty) many are probably now considering a renovation as a better option than moving.
Housing market listings have increased in spring and over recent months auction volumes and clearance rates have also increased.  It will be interesting to see whether this translates into a lift in housing finance commitments over the coming months as the data becomes avaialable.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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Investor housing demand rises as owner occupier fades: CoreLogic

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<div>
Citi and ING Direct are both tightening the amount they will lend to property investors and owner-occupiers.
Citi has a confidential list of nearly 260 postcodes nationally that its 'high density unit policy' will apply.
The Australian Financial Review suggested high density is any unit development containing more than 30 units.
The bulk of the postcodes are in Melbourne, Sydney, surrounding inner suburbs and up to 15 kilometres from the central business districts.
</div>
<div>It is more than double the number of postcodes that were revealed as being held on Macquarie Bank's similiar constraint list.</div>
<div>recently tightened lending requirements for.</div>
<div>
Loan-to-value ratios will be reduced from 80 to 70 per cent.
</div>
<div>ING Direct has new guidelines on apartment and units with an internal floor space of less than 60 square meters.</div>
<div> </div>
<div>Those with an internal floor space of less than 60 square metres – excluding balconies car spaces – and less than five years old will have a maximum loan-to-value ratio of 70 per cent.</div>
<div> </div>
<div>Apartments with an internal floor space between 50 and 60 square metres – excluding balconies and car spaces  - and older than five years will limit the maximum loan-to-value to 80 per cent.</div>
<div>
Both lenders use broker networks to recommend their products.
Firstmac, a non-bank lender with about $8 billion under management, tightened lending for apartments in developments with more than six floors. It has excluded rental income as a source for servicing the mortgage.
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ING Direct and Citi tighten lending policies on apartments

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Westpac has decided to stop lending to offshore customers who are not citizens or residents of Australia with an eligible visa.
“It continues to be Westpac's priority to support Australian citizens and permanent residents (including applicable visa classes) living outside of Australia on their journey to own a home or investment property in Australia,” the bank said.
Effective immediately, changes to applicants earning foreign income policy will also occur.
For non-residents, no lending is permitted even if the applicant income is not relied on to meet serviceability, a letter to brokers obtained by Mortgage Business advised.
Local applications that include foreign income will be given a lower loan-to-value ratio of 70 per cent, down from 80 per cent. 
<div>
The new policy from April 26 will apply to all loans that were pre-approved but have not been issued. 
</div>
<div>
Last week developers said any withdrawal of bank lending could lead to a possible self-fulfilling fear of "apartment collapse". 
</div>
"The problem is they [Chinese buyers] don't know how much the banks will give till the end," the Meriton boss Harry Triguboff said. 
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jchancellor-FAypfDUnLy

Westpac tightens residential lending to foreign buyers

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<div>It's mainly a been a week of furious tax debate. Admittedly it's been quite a few years since I was employed in a tax position of any note, and even longer since I sat my tax exams.</div>
<div> </div>
<div>No matter, for almost everyone in Australia is a tax expert, and nearly all of us are in agreement that someone needs to pay more tax...just as long as it isn't us!</div>
<div>
 Higher stamp duty levies, land tax, income tax, capital gains tax, imputed rental charges, corporation taxes, and superannuation taxes are just a handful of the tolls and contributions being demanded by the baying mob. We are suddently all sure loving the idea of higher taxes! A couple of things I can recall from studying tax, particularly with regards to the interdependent sectors of the housing market, are that firstly it's far easier to tweak tax rates and sections of the tax legislation than it is to rip them up entirely, and secondly most modelling and scenario analysis falls over miserably because it fails to account accurately for behavioural change triggered by new tax legislation. </div>
<div> </div>
<div>To be frank, I'll believe any fundamental changes when I see them. Deductibility of mortgage interest for investors has effectively been a bi-partisan policy for decades, and it's only now in Opposition that the ALP is proposing a second stab at grandfathering negative gearing rules. My guess is that the most likely change to housing market taxes would be caps on deductibility, but that really is just a guess.</div>
<div>
 Record residential construction boom
</div>
<div> </div>
<div>Perhaps the most curious part of the entire issue is the timing. A surge of investor lending has seen rental growth careering to 20 year lows, and with the supply response now in full swing a record nadir is almost certainly in the post. In fact, we're already there according to CoreLogic-RP Data's data series. It's a well worn argument that investors don't add to the dwelling stock, but if you've ever worked in the development space you'll know that developers don't give a care a toss give a fig whether a property is bought by a homeowner or an investor, negatively geared or otherwise. What creates new supply is declining financing costs, rising demand in aggregate, and thus rising prices, and as this cycle has progressed we have been getting all of these in spades, particularly resulting in a surge of new units, townhouses &amp; apartments, which in turn has already cooled these parts of the housing market naturally. The strongest prices gains have been seen in Sydney and Melbourne and these cities have played host to the bulk of the supply response, though a combination of rising prices, low interest rates and, let's be blunt about this, a fresh market of Chinese mainland buyers of new apartments, has seen construction activity increase sharply in Brisbane and elsewhere too. Only a couple of years after the system was apparently busted (which would allegedly march us into a recession) residential construction activity hit its highest ever level. So much for negative gearing restricting the dwelling stock - it's the greatest residential construction boom on record!</div>
<div> </div>
<div><a href="/images/2016/02/23/A5.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/02/23/A5.jpg" alt=""></div>
<div> </div>
<div>
Rents? As for whether falling demand from investors would lead to rents rising, logically the answer is obviously "yes" as rental supply diminishes, for not all renters want to buy, and many could not afford to do so without borrowing the full purchase price and associated closing costs, a dynamic regulators have been nervously edging away from ever since the financial crisis. Unfortunately I don't have much hard Australian-based evidence upon which to base this assertion, since there have only been two instances where rents have spiked in Australia over the 33 years of available data, but one might reasonably expect that these coincided with downturns in investor activity.
</div>
<div> </div>
<div><a href="/images/2016/02/23/A2.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/02/23/A2.jpg" alt=""></div>
<div> </div>
<div> </div>
<div>
<div>Incidentally, another quirky facet to the negative gearing debate has been the so-termed "Fact Check" articles which instruct us that rental growth indices "must" be adjusted for inflation i.e. the price of consumer goods (such as the price of cheese, pork, sewerage costs, goat, and so on). "Must" they, fact checkers? According to whom are these "facts" actually facts? While there may conceptually be a very loose relationship between inflation and rental price growth, at best it is a link bound by a mile-long rubber band. I've never once come across a landlord adjusting rents for the growth in price of a tub of ice cream, or a dozen eggs, or a packet of smokes, the price of having a root canal, or whatever. It's an absurd notion, really. Typically rental price growth is simply one function of the wider property market cycle, specifically supply (the number and type of rentals available for lease) and demand (the volume of renters in the market, and the product collectively in demand from them), although household income growth does indirectly play its part.</div>
 <div>We can see in the chart below that investor lending more than halved from $0.210 billion in May 1985 to $0.099 billion by early 1986, so evidently the amendments to the tax legislation at that time did change investor behaviour, while dwelling starts also immediately collapsed as charted here previously.</div>
 <div>Unfortunately the ABS data on investor loans is sawn off at January 1985, so it's not possible for me to put the drop into a wider context, although if you believe what property-loving folk wrote nearer to that time, investor sentiment fell dramatically, which contributed to rent increases in Sydney and Perth in the short space of time that interest deductibility was quarantined.</div>
<div> </div>
<div><a href="/images/2016/02/23/A3.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/02/23/A3.jpg" alt=""></div>
<div> </div>
<div>
The inverse link between investor activity and rental price growth in these two charts above could not be any clearer. Moreover, the property markets of today aren't readily comparable unless population growth is dialled back, since in the major markets of Sydney and Melbourne absolute population growth is much higher. Victoria's population grew by 42,781 in 1985, for example, but has been tracking at around 2.5 times that level recently. Mostly old ground. But what about more recently when annualised rental growth soared to 8.4 per cent in December 2008? Was there also a dip in investment lending then which led to the rental supply shortage and some wrecthed rent increases in parts of Sydney and elsewhere? Again, clearly yes, the figures show that investor lending all but halved from $10.1 billion in June 2007 to just $5.1 billion by January 2009, coinciding exactly with the spike in rents as investors deserted the market, spooked by the onset of the global financial crisis and various predictions of a crash by market commentators. As you can see in the chart below, investor lending rebounded strongly from the month of February 2009, which was the month within which Kevin Rudd announced his famous $42 billion stimulus package, and rental growth quickly cooled again.
</div>
<div> </div>
<div><a href="/images/2016/02/23/B2.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/02/23/B2.jpg" alt=""></div>
<div> </div>
<div> </div>
<div>
<div>Overall the figures suggest that sharp rental price increases do follow declines in investor activity, pretty much exactly as you would expect. Recent pullback At the end of the above chart, we can see that monthly investor lending has recently fallen from a peak of $15.5 billion in June 2015 to $12.6 billion by December. Despite this pullback, which was driven by APRA's interventionary measures, I actually don't see strong rental growth returning any time soon for a few reasons. </div>
<div> </div>
<div>Firstly because the rate of dwelling construction and work in the pipeline remains at very high levels. Secondly because such a high proportion of new dwellings is presently being bought by foreign buyers (and thus are not captured by this data). And thirdly because I also have a sneaking suspicion that a fair percentage of deemed "owner-occupiers" are magically switching to become investors post-purchase. There may also be some small impacts from subtle shifts in rental practices such as the growth of Air B&amp;B, although these will surely be less influential than the key trends.</div>
<div> </div>
<div>Overall, despite media articles assuring us over and over again that hosing down investor activity would not lead to increasing rents, market experience tells me that in the largest capital cities this is precisely what would play out. </div>
<div> </div>
<div>Changes to tax?</div>
<div> </div>
<div>Penultimately, few figures have been tortured more enthusiastically of late than those showing who claims negative gearing benefits or deductions for net rent. Of course, the highest deductions in dollar value terms are claimed by high income earners, since this cohort pays the highest rate of tax - and thus the most tax - and also tends to buy more expensive rental properties, which naturally have a weaker rental return. </div>
<div> </div>
<div>The data presented objectively by Cameron Kusher of CoreLogic-RP Data below show that negative gearing is used right across the spectrum of taxpayers by income bracket, although it is true that you are more likely to claim net rent deductions if you have taxable income of $80,000 or above (25.8 per cent of taxpayers in this cohort) than if you earn $80,000 or below (13 per cent).</div>
<div> </div>
<div><a href="/images/2016/02/23/ATO.jpg" target="_blank">Click to enlarge</a></div>
<div><img src="/images/2016/02/23/ATO.jpg" alt=""></div>
<div> </div>
<div>
<div>This rings true. From my own experience, none of my friends owned a rental property when we worked in part time jobs at university or in the years immediately after high school, but a fair few did so over time as they grew older, got full time and better paying jobs, met life partners who were incumbent property owners, and so on.</div>
<div> </div>
<div>The figures show that the overwhelming majority of taxpayers with rental properties never own more than one property, and most of the remainder own only two (this can easily happen by default as a couple leave their respective starter home apartments in order to cohabit), while my experience in the market tells me that everyday people in full time employment claim rental deductions just as frequently as CEOs and surgeons. You can see this for yourself every weekend at opens and auctions. </div>
<div> </div>
<div>In this regard, market experience is as instructive as the tortured data. Not dissimilarly it was obvious during the so-called "homebuyers strike" in Sydney that every second person who called me was a first-time buyer, but rightly or wrongly they were buying an investment property as a first step onto the ladder rather than a home (and as such were not being captured or classified as "homebuyers").</div>
<div> </div>
<div>There have been calls to halve the capital gains tax discount, but with a Coalition Prime Minister with a net worth of well over $100 million, this seems to me to be a seriously remote prospect. It's worth noting that the introduction of the capital gains tax discount did not halve tax payable as is frequently implied, rather it replaced the old indexation of the cost base system which ran from 1985 and was not discontinued until 1999, inflicting a searing pain upon tax exam students and preparers of tax returns alike. Capital gains tax (CGT) is a crappy tax, especially when it does not account for inflation, effectively a punitive double <a href="https://www.themoneyillusion.com/?p=7091" target="_blank">taxation of savings</a> which discourages investment. The optimal rate of CGT is zero. In any case new housing is already one of the most heavily taxed commodities there is.</div>
 New builds? <div>Finally, on paper, Labor's proposal to limit negative gearing deductions to new builds sound plausible, but in practice this would simply replace one market distortion with another. In particular buyers of new-build investment properties benefitting from tax deductions would discover that their resale market had been ripped out from underneath them, effectively leaving them sitting on six-figure paper losses or "negative equity" from the date of settlement.</div>
<div>
 Indeed this already happens to buyers of new properties today, albeit to a less dramatic extent, which is why in the absence of homebuyer grants for new builds developers often sell to self-managed super funds lured by tax incentives and bad advice from accountants, or to foreign buyers. Chris Bowen's assertion that buying new property is not "in any sense" more risky than buying established is discredited by all available research. Most of the debate this week has really been about intergenerational equity rather than budget repair, which is sensible, but perhaps overlooks the high level of supply of construction in the pipeline. In my opinion changing negative gearing rules - which after all, is a timing difference rather than a genuine tax concession - would generate close to zero additional tax revenue after behavioural change, reduced stamp duty excise and soaring public housing costs are accounted for. In any event, net rental losses have declined since even in nominal terms in 2008, while net rental profits have increased by well over 50 percent.</div>
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PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
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