Roger Mont­gomery

Hur­ri­cane re­pairs in the US may help off­set a slump in the apart­ment mar­ket here

Money Magazine Australia - - CONTENTS - Roger Mont­gomery is the founder and CIO at The Mont­gomery Fund. For his book, Value.able, see roger­mont­gomery.com.

Re­cently, Aus­tralia’s rich­est man and its big­gest apart­ment de­vel­oper, the prop­erty bil­lion­aire Harry Triguboff, cited slow­ing for­eign in­vestor in­ter­est as a rea­son for his ob­ser­va­tion that “the slow­down in the apart­ment mar­ket is wors­en­ing”, adding the num­ber of new apart­ments sold had dropped and prices had fallen about 10% over the past six months.

Sep­a­rately, in­vest­ment bank UBS re­ported the re­sults of a sur­vey of al­most 1000 Aus­tralian mort­gage hold­ers who bor­rowed in the 12 months to Au­gust 2017, not­ing: “Our 2017 sur­vey found fac­tu­ally ac­cu­rate mort­gage ap­pli­ca­tions fell to just 67%. There are now about $500 bil­lion in ‘liar loans’ on the banks’ books.”

Mean­while, in­ter­est-only mort­gages in­creased from around 35% of to­tal orig­i­na­tions in 2013 to a peak of 46% in June 2015. APRA’s de­ci­sion to cap the pro­por­tion of new in­ter­est-only mort­gages at 30% of to­tal orig­i­na­tions for each of the banks from July 1 this year means that in just 2½ years the loans orig­i­nated in July 2015 (46% of which were in­ter­est-only) will need to be re­fi­nanced and many bor­row­ers will be forced onto prin­ci­ple-and-in­ter­est mort­gages with an as­so­ci­ated in­crease in re­pay­ments of as much as 40% – even if in­ter­est rates don’t rise.

Fi­nally, a slump in ap­provals in re­cent months sug­gests a slump in the near fu­ture for con­struc­tion ac­tiv­ity in Aus­tralia.

But hav­ing said all that, hur­ri­canes Har­vey and Irma could prove a boon for in­ter­na­tional builders and build­ing sup­ply com­pa­nies be­cause Texas and Florida ac­count for 14% and 10% re­spec­tively of the to­tal US mar­ket for hous­ing ap­provals.

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