Developers in line of fire in property squeeze, says UBS
The tough stance on lending by major banks could hit developers of suburban land blocks, amid new fears about the potentially dire direction of the housing market.
Investment bank Morgan Stanley’s latest forecast said that house prices could plummet by up to 15 per cent and home lending approvals may hit a 7½-year low.
Now, a detailed analysis by in- vestment bank UBS has warned the market does not fully appreciate the potential implications of implementing new credit reporting rules and restricting high debtto-income lending.
It came as finance for Australian housing contracted in August as tighter rules for mortgage lending by banks continued to bite, and house prices extended a yearlong retreat.
The number of Australian home loan approvals fell by a seasonally adjusted 2.1 per cent in Au- gust from July, the Bureau of Statistics said yesterday. Economists surveyed ahead of the survey had expected a 1 per cent fall for the month.
UBS analysts Grant McCasker and James Druce said that as banks began to share customer data ahead of Comprehensive Credit Reporting and the banking regulator pushed for limits on high debt-to-income lending, they questioned whether owner-occupiers and investors had the borrowing capacity to acquire entry level house-and-land packages and units.
Their analysis of Stockland and Mirvac products showed that a debt-to-income limit of six times was likely to be a binding constraint for an average investor for most entry-level product that was developed by the two developers. They found that these limits would only likely hit owner-occupiers seeking to buy in NSW.
UBS also took a cautious stance on potential changes to negative gearing, saying that if it only applied to future purchases of new housing, there were some expectations for increased demand for this product.
“However, we do not envisage a material uplift in the event of changes to negative gearing as we anticipate the full implementation of credit reporting rules together with prescriptive limits on high debt-to-income lending to be a binding constraint for the majority of investors in the majority of estates developed by Mirvac and Stockland,” they said.