RBA says foreign investors will buoy house prices
Posted on: 23 Mar 2016

RBA says foreign investors will buoy house prices

"Supply and demand dictates prices. With the demand for residential properties rising within Australia due to a housing shortage coupled with demand from overseas rising, property prices are likely to rise further.

The Reserve Bank has shrugged off concerns of a slowdown in residential property investment, saying sustained demand from foreign buyers will buoy the sector even if local appetite weakens.

Offshore buyers took a view on property investment decisions that made them less likely than locals to be influenced by changes in the domestic economy, the RBA said in its statement on monetary policy on Friday.

The RBAs view  RBA

"Dwelling investment seems likely to be supported by continued strong demand from foreign buyers," the RBA said. "Information from the Bank's liaison suggests that foreign buyers tend to have long-term motivations for investment and may be relatively unconcerned about temporary fluctuations in housing price growth.

Offshore demand for residential property - particularly in CBD apartments - has driven the housing construction market to new highs. But with the prices of apartments softening and new dwelling approvals figures coming off their recent peaks, uncertainty is rising about how the market will perform. Price growth will certainly moderate from last year - the question is how much. National Australia Bank this week said house prices are likely to grow just 1 per cent this year and apartment prices will fall 1.2 per cent.

Some analysts take a more negative view. China's crackdown on on illegal and unauthorised foreign exchange transfers would "exacerbate the collapse of the cycle," CLSA senior analyst Andrew Johnson said in a research note on Friday. Mr Johnston downgraded his recommendation on Lendlease to Sell from Outperform, saying it was most exposed, with 60 per cent of earnings expected from apartment development.

The RBA itself said some areas "particularly the inner-city areas of Melbourne and Brisbane" were at risk of a housing oversupply and separate industry figures on Friday showed apartment construction work slowed sharply in January.

But the RBA's more sanguine view overall, by contrast, is more in line with comments by Goldman Sachs head of Australia/New Zealand macro research Tim Toohey on Thursday that a flood of money out of China over the past six months could push property prices higher.

The central bank still expects a more subdued local demand for housing, however, and this picture was supported by companies reporting earnings on Friday.

Realestate.com.au owner REA Group said property listings were flat in the half-year to December, but it boosted profit 28 per cent by selling more value-added services to existing clients. Mortgage lender insurance provider Genworth, which reported a 5 per cent decline in underlying net profit for the year to December, said moderating house-price growth and a cut in appetite by lenders for high loan-to-value-ratio mortgages would cut revenue this year.

"Genworth expects house price appreciation to moderate in 2016," the company said. "The high LVR market continues to be constrained in 2016 and GMA expects GWP to decline by approximately 20 per cent due to these market conditions."

In its economic update, the RBA said tighter lending conditions had pushed loan rates for owner-occupiers above to their level prior to the central bank's 25 basis-point cut in May and rates for investors were up more, to their level of a year ago. This had seen lending to owner-occupiers grow faster than to investors, but all local buyers would likely be influenced by the local economy, it said.

"Population growth, employment prospects and expectations for future housing price growth are likely to be important considerations for domestic buyers," the RBA said.

By Michael Bleby

www.afr.com.au