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<a href="https://www.apartments.com.au/developers/doma-group">DOMA Group</a> has unveiled plans for Newcastle Quay, a major waterfront precinct set to reshape Newcastle’s harbourfront and further cement the city’s evolution into one of Australia’s fastest-growing urban destinations.

Positioned on a prominent site within the Honeysuckle Precinct, Newcastle Quay will span both sides of Honeysuckle Drive, connecting directly to the Foreshore Promenade and sitting within walking distance of Newcastle Interchange.

The mixed-use precinct is planned to include around 1,000 apartments, more than 28,000 sqm of commercial office space, 6,000 sqm of retail, and a 180-room hotel anchored by a 500-seat conference and exhibition centre, a move expected to significantly lift Newcastle’s ability to attract major business and tourism events.
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<img alt="DOMA Group unveil Newcastle’s future with transformative Newcastle Quay Precinct" data-entity-type="file" data-entity-uuid="0642ca09-67cc-4920-8a7e-d18df9729b4e" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/%3D.png?VersionId=CnDmZxQnOV5LN0ePu7jaFBXC9tPGTrWm" />

The proposal builds on DOMA’s growing Newcastle pipeline, where the developer has already delivered 866 apartments and more than 19,000 sqm of commercial and retail space since entering the market in 2013. A further $2 billion pipeline is also in the works across the city.

The masterplan and executive architecture are led by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, with building concepts developed alongside Stewart Architecture, Architecture AND and Curious Practice, and landscape design by <a href="https://www.apartments.com.au/landscape-architect/turf-design">Turf Design Studio</a>. More than 11,000 sqm of open space is planned, including a new waterfront park known as Honeysuckle Green, upgrades to Tree of Knowledge Park, and new pedestrian and cycling links throughout the precinct.

At the centre of the development will be the heritage-listed Wickham School of Arts, which DOMA plans to reposition as the civic and cultural heart of the precinct through restaurants, bars, events and public gathering spaces.

The broader vision is to create a genuine day-to-night precinct, blending residential, hospitality, retail, commercial and cultural uses in a way Newcastle has yet to experience at this scale.

DOMA Group Managing Director Jure Domazet said the aim was to create a precinct that becomes synonymous with Newcastle itself.

“Our vision is to create a precinct that not only delivers high-quality commercial, residential, and cultural spaces, but also defines Newcastle’s waterfront for generations to come,” Domazet said.

DOMA’s Chris Farrington said the project would fundamentally change how Newcastle is perceived nationally.

“Newcastle Quay is more than a waterfront precinct, it is a national announcement for this city,” Farrington said.

“A world-class Conference and Exhibition Centre will open Newcastle and the Hunter Region to a national and international audience for the first time, delivering something this city has long deserved.”

The project is expected to generate more than 4,000 full-time equivalent jobs and act as a major economic driver for the Hunter region through tourism, business events, hospitality and commercial investment.

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Minister for Planning and Public Spaces Paul Scully said the final parcel of harbourfront land will be a "true mixed-use precinct destination that includes housing, hospitality and entertainment, commercial spaces, retail, economic and social outcomes."

Joel Robinson

DOMA Group unveils 1,000-apartment Newcastle Quay precinct

ASX-listed developer Stockland is continuing to ramp up its return to the apartment market.

In late 2024, <a href="https://www.apartments.com.au/developers/stockland">Stockland</a> announced it would resume apartment development after a 13-year absence, launching with Stanton Place in Rosebery, a 144-apartment project now under construction.

Last week, the developer unveiled plans alongside the NSW Government for a <a href="https://www.apartments.com.au/news/nsw/first-look-stockland-nsw-gov-unveils-plans-for-3-300-home-waterloo-south-renewal">3,300-home precinct in Waterloo</a>.

Now, Stockland has shifted its focus in St Leonards, lodging a State Significant Development Application (SSDA) to replace an approved 42-storey office tower with a 52-storey residential development comprising more than 500 apartments.

<img alt="Stockland" data-entity-type="file" data-entity-uuid="8979095e-9072-432b-a7da-58b180cf994d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-20%20at%204.27.36%E2%80%AFPM.png?VersionId=_jbRXYOafCSHjwsz.yQCNIymMyCj8zkF" />

An existing 14-storey commercial office building would make way for a 264.5-metre tower designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>. The project would deliver 538 apartments, including 30 affordable housing units, alongside retail and commercial uses at the podium and ground plane.

It will rise from&nbsp;<a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">601 Pacific Highway</a>, a prominent 2,844 sqm triangular site adjoining Mitchell Plaza and fronting Pacific Highway.

The development is being pursued under the Housing Delivery Authority pathway after Stockland’s proposal was declared State Significant Development earlier this year.

<img alt="First look: Stockland plans 52-storey mixed-use tower with 538 apartments in St Leonards" data-entity-type="file" data-entity-uuid="67f40f35-0458-47ab-80c0-a4e98a31838a" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/stockland%201.png?VersionId=rxXe3njr.auuGDuiR0k42uI8Zr4K.gZA" />

The apartment mix includes 217 one-bedroom apartments, 191 two-bedroom apartments, 122 three-bedroom apartments, and eight four-bedroom residences. Six basement levels would accommodate 300 car spaces, bicycle parking, loading areas, and building services.

Bates Smart said the project has been shaped around a series of urban design principles intended to improve the pedestrian experience and respond to the evolving character of St Leonards.

“With a boundary length of almost 75m along Pacific Highway and 70m along Atchison Street to the north, complying simply with the LEP envelope and required setbacks would result in a very wide tower form on the skyline,” the architects noted in the Design Report.

“We propose breaking the tower form into two defined volumes rather than a singular form.”

The podium has similarly been articulated into separate forms to reduce perceived bulk and create a finer-grain response to Mitchell Plaza and Atchison Street. Retail tenancies would activate the lower levels, while commercial space is proposed across the podium floors.

<img alt="First look: Stockland plans 52-storey mixed-use tower with 538 apartments in St Leonards" data-entity-type="file" data-entity-uuid="90149990-0551-40d2-bd48-14b69a015d12" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/stockland%202.png?VersionId=MJC2KIIWFvU9FPGr3IVq09gkRN_gX3m8" />

The design also places a significant emphasis on communal amenity and environmental performance. Residents would have access to landscaped terraces, wellness areas, flexible workspaces, and rooftop communal facilities, while the all-electric building is targeting an average 7-star NatHERS rating. Bates Smart said the project incorporates passive design measures including natural ventilation, integrated shading, and lightweight façade systems.

Planning documents note the site is around 350 metres from St Leonards Station and 400 metres from the metro entrance, placing it within one of Sydney’s most connected emerging residential precincts.

The project arrives amid a wave of large-scale redevelopment proposals reshaping the St Leonards and Crows Nest skyline. Several nearby sites have recently been approved, lodged, or declared under the Housing Delivery Authority pathway as the precinct absorbs significant residential density uplift tied to transit-oriented development policies.

<img alt="Stockland" data-entity-type="file" data-entity-uuid="7805bd7c-dfd7-4b35-8e15-ec4a8bf8e61b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-20%20at%204.27.26%E2%80%AFPM.png?VersionId=iY12K2m2bQ6EeDnshqfZC9rbLx_oEugP" />

Bates Smart’s report describes St Leonards as transitioning away from its historical commercial identity toward a more mixed-use urban environment.

“In recent years, the character of St Leonards has started to evolve, driven by new development trends along the Pacific Highway corridor,” the report said.

“These projects have increasingly focused on residential accommodation, marking a shift from its purely commercial roots.”

Sekisui House Australia is currently selling Waterstone down near Newlands Park, in a pocket being branded "St Leonards South." Hyecorp recently completed Audrey in the same pocket.

First look: Stockland plans 52-storey, 538-apartment St Leonards tower

ANZ believes the Reserve Bank is in no rush to move again.

Following the release of the May Monetary Policy Board Minutes, ANZ has taken the view that the RBA is now firmly in a holding pattern, with the cumulative impact of previous rate hikes giving the Board scope to assess how the economy evolves from here.

That positioning, in ANZ’s view, makes a June rate hike unlikely.

The bank continues to expect the cash rate to remain unchanged at 4.35 per cent for an extended period, with the RBA adopting what is effectively a wait-and-see approach.

The Minutes point to a Board that sees financial conditions as already restrictive, but without a clear read on just how restrictive they are. That uncertainty has shifted the focus away from immediate policy action and toward monitoring both domestic conditions and global developments, particularly the conflict in the Middle East.

As ANZ interprets it, the Board is deliberately avoiding strong forward guidance.

Instead, it is allowing itself flexibility, acknowledging that monetary policy has limited ability to influence the near-term trajectory of inflation, while also recognising that economic growth is likely to remain below potential for some time.

Despite that pause in momentum, ANZ notes that the Board still carries a tightening bias.

The Minutes reveal that, in weighing up its decision, the Board seriously considered another 25 basis point increase. The key debate centred on the trade-off between inflation and activity, particularly in the context of global uncertainty.

Ultimately, most members leaned toward the inflation side of that equation.

Underlying inflation is still expected to remain above target for an extended period, regardless of how external risks evolve. That has led to a view within the Board that the risks to its inflation objective have increased, and that the current cash rate may not be sufficiently restrictive to fully contain those pressures.

That’s important.

While the decision, for now, is to hold, the underlying tone of the Minutes suggests the door to further tightening has not been closed.

ANZ also points to commentary from Assistant Governor (Economic) Sarah Hunter, who highlighted the risk that inflation could pass through the economy more quickly and broadly than in previous cycles. Both Hunter and a majority of the Board expressed concern that inflation expectations could become less anchored after such a prolonged period above target.

That combination, persistent inflation and the risk of expectations shifting, is what continues to underpin the RBA’s cautious stance.

However, where ANZ diverges from the RBA is on the outlook for activity.

The Board appears relatively comfortable with current spending patterns, effectively downplaying recent declines in business and consumer sentiment. It notes that sentiment has historically been only weakly correlated with actual spending, and that feedback from its liaison program has not yet pointed to a meaningful slowdown in consumption.

ANZ is less convinced.

The bank believes the link between household disposable income, sentiment and spending is more direct than the RBA is currently acknowledging. With inflation continuing to erode real incomes, ANZ expects household spending to soften more materially than the central bank is forecasting.

That divergence matters because it shifts the balance of risk.

If activity weakens more than expected, the trade-off between inflation and growth changes. In ANZ’s view, that would reduce the need for further tightening and reinforce the case for the RBA to remain on hold.

It also suggests that the current policy setting may already be doing more work than the Board fully appreciates.

The broader takeaway from ANZ’s interpretation is that the RBA is walking a narrow path.

On one side sits the risk of inflation remaining elevated for longer than expected. On the other is the growing pressure on households and the potential for a sharper slowdown in activity.

For now, the Board is choosing to wait.

But it is a pause that still carries an underlying tightening bias, rather than a clear pivot toward easing.

In practical terms, that leaves the cash rate anchored at 4.35 per cent for the foreseeable future, with the next move still uncertain.

For borrowers, it reinforces the reality that relief is not imminent.

And for the broader economy, it highlights the delicate balance the RBA is trying to strike, between bringing inflation back to target and avoiding an unnecessarily sharp slowdown in growth.

According to ANZ, it is a balance that is becoming increasingly difficult to maintain.

RBA to hold rates for "prolonged period" rather than hikes: ANZ

<a href="https://www.apartments.com.au/developers/venturecrowd-property-projects">VentureCrowd</a> is down to the final Canopy Villa release at Cumulus Grand Villas in Carrara, as construction continues on the 59-residence gated community positioned above 100 hectares of natural savanna on the Gold Coast.

The remaining Canopy Villa forms part of one of four collections within the <a href="https://www.apartments.com.au/architects/bda-architecture">BDA Architecture</a>-designed community and has attracted interest from buyers seeking larger-format homes that combine privacy, security and low-maintenance living. Positioned within a private cul-de-sac and facing a protected black she oak forest, the four-bedroom villa includes a large private outdoor area suited to pet owners and families wanting more flexible space.

<a href="https://www.apartments.com.au/new-townhouses/cumulus-grand-villas-carrara-17-baltimore-court-carrara-qld-4211">Cumulus Grand Villas</a>, located at 17 Baltimore Court, comprises a mix of three and four-bedroom villas across the Skyline, Canopy, Savanna and Broadview collections. Prices currently range from $1.455 million to $1.895 million, with the final Canopy Villa priced from $1.825 million.

[smartcode_project:default project_id=135663 project_image_fid=360477]

The Canopy Collection villas offer four bedrooms, 2.5 bathrooms and approximately 245 sqm of internal space, alongside double garages and landscaped private areas. Expansive glazing, open-plan living spaces and private balconies have been designed to maximise natural light and outlooks toward the surrounding savanna landscape.

Construction is now underway across the fully funded development, which VentureCrowd says has become an increasingly important consideration for buyers assessing off-the-plan opportunities on the Gold Coast. The project is being delivered by <a href="https://www.apartments.com.au/builders/devcon">Devcon Property Group</a>, which has operated in South East Queensland since 1993 and delivered more than 1,000 homes across the region.

VentureCrowd Director of Property David Whitting previously said the project responds to changing buyer priorities in the prestige Gold Coast market.

“Flexible floorplans have proven particularly relevant for purchasers aged between 40 and 65, including next home buyers, downsizers and investors,” Whitting said.

[smartcode_project:default project_id=135663 project_image_fid=360505]

The buyer profile at Cumulus has reflected that shift toward owner-occupier-driven demand. Stuart Towns and Tracey Loynes recently purchased a Canopy Villa, drawn to both the lifestyle offering and the flexibility the home provided for their next stage of living together.

The couple, who met three years ago, sold their Robina home earlier this year after identifying what they saw as strong long-term investment potential at Cumulus while remaining within the same Gold Coast market. The villa’s private backyard was a major drawcard for their dog Luna, while proximity to golf courses including Emerald Lakes also aligned with their lifestyle interests.

Beyond the residences themselves, the community has been planned around shared lifestyle and recreation amenities. The Infinity Terrace will include a 20-metre heated pool, barbecue facilities, alfresco dining spaces and elevated retreat areas overlooking the surrounding landscape. Walking trails, a private nature reserve, orchard and herb garden are also integrated into the masterplan.

[smartcode_project:default project_id=135663 project_image_fid=360473]

BDA Architecture Director Darren Greenaway said the design approach was heavily influenced by the site’s outlook and secluded setting.

The practice sought to create what Greenaway described as a “little piece of paradise,” drawing inspiration from the elevated views, surrounding greenery and quiet location.

<a href="https://www.apartments.com.au/developments/carrara-qld-4211">Carrara</a> continues to attract buyers seeking larger homes within proximity to the coast but without direct beachfront pricing. Cumulus sits within easy reach of Broadbeach, Pacific Fair, Robina Town Centre and the M1, providing connections north to Brisbane and south toward the Gold Coast Airport and northern New South Wales.

The first stage of Cumulus Grand Villas is targeting completion in 2026.

[smartcode_project_cta:default project_id=135663]

VentureCrowd nears sell-out of Canopy Collection at Cumulus Grand Villas in Carrara

Waverley Council has made a call that many councils have been reluctant to make publicly. Growth is coming, regardless of who controls it.

The release of the Bondi Junction Vision and Master Plan is less about whether the Eastern Suburbs’ primary centre will change, and more about how that change is shaped, funded, and ultimately experienced on the ground. Waverley Council has released a 100-page plan which is effectively the first comprehensive blueprint for Bondi Junction in over two decades, and in doing so, signals a clear shift in how councils are positioning themselves in the current planning environment.

For the past 18 months, the conversation across New South Wales has been dominated by the State Government’s Low and Mid-Rise Housing reforms and the emergence of the Housing Delivery Authority pathway. Both have created faster, more centralised avenues for development approvals, particularly in well-located, infrastructure-rich areas like Bondi Junction.

Waverley Council’s response has been to move early, and decisively.

Rather than react to individual proposals as they come through the HDA or broader State-led reforms, Council has sought to establish a clear, place-based framework that sets the terms for how Bondi Junction evolves. The underlying position is relatively straightforward: if densification is inevitable, it should be tied to infrastructure, public domain improvements, and a cohesive vision for the centre, not delivered piecemeal through ad hoc applications.

<img alt="bondi junction" data-entity-type="file" data-entity-uuid="7f1f729c-ed99-4c6c-bf87-ffbce6991941" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-19%20at%209.58.16%E2%80%AFAM.png?VersionId=ULX4OlXKjeJ5BvNCNGL86evgXCjCfMih" />

At its core, the document is attempting to reposition Bondi Junction from what it largely functions as today, a transport interchange anchored by a major retail centre, into something far more layered. The ambition is to transform it into what the plan describes as the “civic and cultural heart of Sydney’s East,” a place that is active beyond commuting hours and capable of supporting a broader mix of uses, experiences and communities.

That repositioning is built around four key ambitions.

The first is to create a true destination. Bondi Junction already attracts significant foot traffic, with more than 86,000 daily transport users and millions of annual retail visits, but much of that activity is transient. People pass through, rather than stay.

The Master Plan seeks to change that dynamic. It leans heavily into the idea of an “18-hour economy,” extending activity well beyond traditional retail hours through dining, cultural programming, events, and a more active night-time offering. This is not just about adding more hospitality venues, but about fundamentally shifting how the centre operates, from a daytime shopping destination to a place that functions across the full span of the day and into the evening.

Oxford Street Mall sits at the centre of that shift.

Long seen as underperforming relative to its potential, the Mall is identified as one of the key catalyst projects in the plan. It is to be reimagined as a day-to-night spine, combining retail, dining, wellness and cultural uses in a way that creates a continuous flow of activity. Outdoor dining, rooftop venues, laneway activation and a curated events program are all part of the strategy, alongside significant public domain upgrades that aim to improve comfort, safety and usability.

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The second ambition is to transform Bondi Junction into a world-class interchange.

Despite being one of the most heavily used transport nodes in Sydney, the current experience is fragmented. Connections between the station, Westfield, Oxford Street Mall and surrounding streets are often unclear, and major roads create physical barriers that disrupt pedestrian movement.

The Master Plan proposes a more seamless, people-focused network. That includes clearer pedestrian links, improved wayfinding, better integration between transport modes, and a rethinking of how arrival into the centre is experienced. The aim is to shift the perception of Bondi Junction from a place people move through, to a place they arrive in.

The third ambition focuses on greening and open space.

One of the more consistent pieces of community feedback throughout the Vision phase was the need for more greenery, better public spaces, and a more comfortable urban environment. Despite being surrounded by major parks, Bondi Junction itself has relatively limited accessible open space, with much of the public realm dominated by hard surfaces and traffic infrastructure.

The plan responds with a network of new and upgraded public spaces, increased tree canopy, and what it terms the “Parkline,” a green link connecting Waverley Park through to Centennial Park. This is not just about aesthetics. It is about addressing heat, improving liveability, and ensuring that increased density is matched by access to high-quality outdoor space.

The fourth ambition is perhaps the most important from a development perspective: growth that gives back.

Bondi Junction is already the primary location for new housing supply in the Waverley LGA, and that is expected to continue. The area carries a target of 2,400 new dwellings by 2029, with further growth projected beyond that as demand for well-located housing continues to rise. The Master Plan does not seek to limit that growth. Instead, it attempts to shape it.

New housing is to be concentrated around transport, with stepped building heights designed to protect the character of surrounding neighbourhoods. At the same time, the plan introduces a more explicit link between development uplift and public benefit. This is where value capture becomes central.

The document outlines a framework where increased development potential is tied to contributions that fund public domain improvements, community infrastructure, open space, and affordable housing. It is an approach that recognises that much of the transformation of Bondi Junction will be delivered by the private sector, but seeks to ensure that the benefits of that growth are shared more broadly. The Civic Precinct is a key part of that equation.

Leveraging Council-owned land, the plan proposes a consolidated civic and cultural hub centred around Ebley Street. This would include new community facilities, cultural spaces, and potentially a new Council Chambers, creating a focal point for civic life that currently does not exist in Bondi Junction at scale.

It is one of several catalyst projects identified in the Master Plan, alongside the Oxford Street Mall transformation. These projects are intended to anchor change, acting as early interventions that unlock broader investment across the precinct.

Importantly, the Master Plan is not just a design document. It includes a delivery framework that sets out how these ambitions are intended to be realised.

Council is explicit in acknowledging that it cannot deliver the transformation alone. Implementation will require coordination between State agencies, private developers, landowners and the community, with a mix of planning agreements, infrastructure contributions and direct delivery mechanisms used to fund and stage improvements over time.

The plan outlines a mix of short-term, medium-term and long-term actions, from immediate public domain upgrades and planning controls, through to larger-scale projects that will unfold over the next decade or more. In practical terms, the next 12 to 24 months will be the most important.

This is when the Master Plan will move through exhibition, refinement and eventual adoption. It is also the period in which Council will seek to embed the framework into its planning controls, giving it weight in the assessment of future development applications.

Council officers have indicated that once the Master Plan is in place, it could be used as a benchmark when assessing Housing Delivery Authority proposals, and potentially reduce the need for further HDA declarations within Bondi Junction. In effect, it is an attempt to bring planning control back to the local level, while still aligning with State housing targets.

That tension between State-led reform and local planning control is not unique to Waverley. It is playing out across Sydney.

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If delivered as intended, Bondi Junction will become denser, more active, and more complex. It will support more residents, more workers, and a wider range of uses, extending beyond its current retail core into a more layered urban environment.

“The civic and cultural heart of Sydney’s East”: Bondi Junction masterplan revealed

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>
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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>
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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>
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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>
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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. 
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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.  
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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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prateek24-ezbwHMbNAk

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?
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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.
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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.
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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.
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<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.
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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.
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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.
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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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<div>Changes to tax?</div>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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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<div>
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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