De­vel­op­ers in line of fire in prop­erty squeeze, says UBS

The Weekend Australian - - BUSINESS REVIEW - BEN WILMOT

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.

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