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APRA announces changes to the lending landscape

The Australian Prudential Regulation Authority (APRA) continues to work on both superannuation and the lending sphere in response to the commissions into superannuation and banking.

On June 18, APRA announced directions and additional license conditions for AMP Superannuation,  noting its concerns about AMP Super’s management of conflicts of interest, governance and risk; the processes for breach remediation; how poor risk culture is addressed; and ways to strengthen its board and mechanisms for accountability – all aspects of compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Under these new directions, AMP Super will need to engage an external expert to report on its remediation and compliance with APRA’s instructions.

APRA is casting its stern and watchful eye over what it considers risky loans as well, announcing capital guidelines for large and small banks on 12 June. The new guidelines come in the wake of its original proposals made in February 2018 and industry feedback on those proposals.

The guidelines target higher-risk, interest-only investment loans, which will now have tighter capital requirements than the principal-and-interest mortgages typically taken out by owner-occupiers. What this means is that, for the investment loans, banks will have to hold more capital to absorb any losses against those higher risk mortgages, which are among the biggest assets of the four major banks.

APRA’s directions affect small to medium enterprise (SME) business lending as well as the mortgage sector, with recommendations for additional types of collateral and more detailed risk assessments for SME loans. Credit cards and personal loans secured by vehicles will also be subject to lower risk weights. Smaller and less complex banks will have a more simplified framework.

APRA says its approach aims to keep outcomes competitive. Most changes won’t take effect until January 2022, ADIs currently using advanced models may need to implement the new requirements from 1 January 2021.

Image Source: Louis Douvis, The Sydney Morning Herald

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)

A lot of people purchase property as part of an investment portfolio, aiming to create wealth over a long period through rental income and potential eventual sale. Some investors, however, intend to speculate on short-term gains made by quickly buying and selling property.

What’s the difference, though, between a speculator and an investor?

Investopia calls it the difference in the level of risk being undertaken, noting that for investors the risks are more calculated. “High-risk speculation is typically akin to gambling,” says Joseph Nguyen, “whereas lower-risk investing uses a basis of fundamentals and analysis.”

Cate Bakos agrees those who prefer quick turnaround and short term gains are taking higher risks than investors who are in it for the long term. However, she also notes that people simply have different strategies they favour and that “there is no right or wrong answer, provided the investor achieves a suitable outcome”.  

The view from The Balance describes investors as those who only buy stock or property that is trading less than its intrinsic value, while speculators buy up when the stock or property is experiencing high volume turnover (rather than its underlying value), particularly in a bull market. The profit potential when buying low and selling high at the crest of the boom comes at the risk of mistiming the sale point. If an investor can’t afford the loss of investment funds if the timing is botched, The Balance recommends taking the steadier approach.

Another view of the investor versus speculator divide comes from CPS Property, which says “the difference is usually in the timing” – not in reference to when the market prices are right, but when you the investor are best situated to take those short term risks in exchange for potentially higher gain. Essentially, are you in a situation to manage if the risk doesn’t pay off and you experience a significant loss?

The steadier strategy of researching the fundamentals and investing for the long term reduces the risks and encourages long-term gain and return; but the higher risks of short-term speculation can yield profitable results. But the two strategies are not alike and require careful consideration, especially before deciding to take the higher risks.

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)

property advisor

Buying and selling real estate is a complex and important experience in life. Whether you’re a first time home buyer or you own multiple investment properties, property purchases are significant. The experience can be made more efficient and cost-effective when working with an expert who can negotiate on your behalf.

We can’t all be experts in everything, so the wisdom is in knowing when outsourcing tasks to experts offers the best value. Engaging expertise can give you the edge in getting the best prices, reducing stress, avoiding administrative or legal pitfalls, and accessing ‘in the know’ opportunities and products. Read on for our top 3 reasons to work with a property advisors on your next property purchase.

  1. Property advisors bring extensive experience in property transactions

Engaging a property investment advisor for your real estate dealings brings a lot of benefits.  For a start, an advisor will have experience in a lot more property transactions than the average individual, and of a wider variety of property types too.  

  1. They are expert negotiators.

Their negotiation experience along with their specialist knowledge of the property sector can help these advisors spot issues that may not be obvious to the average person.  As someone famously once said, you don’t know what you don’t know.

  1. They save you time and stress

Let’s not forget how stressful and time-consuming real estate negotiations can be.  A few years ago, it was reported that Australians spent a lifetime average of 208 days “searching, settling or moving into a rental or bought property”. If your time is worth money, perhaps it makes sense to outsource to someone who can get better results sooner.

The benefits and overall savings of using a property investment advisor can accrue over a lifetime of multiple property purchases, too.

When you have limited experience with real estate, you’re time-poor and you’re looking at high-value investments, teaming up with someone who has the negotiation and administrative skills in the industry might be the best investment decisions you make.

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)

Rental Home

The received financial wisdom on housing has always been that people are better off paying off a mortgage than paying rent. However, Ernst & Young’s 2019 Safe as Houses report challenges this assumption – at least in the Sydney market.

EY analysed 25 years’ worth of data from the Reserve Bank of Australia (RBA), the Australian Bureau of Statistics (ABS) and the Department of Family and Community Services (FACS) to conclude that “in 60 percent of the cases examined between 1992-2017, homebuyers would have been better off renting and maintaining a leveraged ASX200 investment than purchasing a home.”

The rent vs buy debate has often argued the pros of renting, which allows you to live in suburbs you might not otherwise be able to afford, gives you more flexibility and costs less overall. Investopedia cites the absence of maintenance or repair costs for the renter, along with not having to find a lump sum for a deposit. Forbes echoes these benefits, including a list of home-owning costs to take into account.

EY’s report reiterates several of these issues, with it’s Chief Economist, Jo Masters, saying, “in addition to considering financial wealth, long term renters can also enjoy significant lifestyle benefits – particularly a mobility dividend from being able to easily relocate for work and no long term maintenance and depreciation risk.”

Well, that’s in 60% of cases in the Sydney area in that 1992-2017 period, anyway.

Ms Masters spoke more on the issue to Peter Ryan of the ABC, encouraging people to investigate their options and consider the pros and cons more deeply. Ms. Masters also thinks some reform to rent regulations to allow more flexibility – such as long term leases, having pets and being able to repaint, in the way renting works in places like New York – is called for.

In the Sydney-centric EY analysis, the financial benefits of renting over buying depended on the period of time or the suburb in question EY’s research indicated renters were overall better off in the northern suburbs of Sydney 70% of the time; but in places like Marrickville and the city centre, buyers better off 67% of the time in the same period.

A Lane Cover renter would have been $316,153 ahead from 1998-2008, but a buyer who bought in 2007 and sold ten years later would have been ahead $205,027. In Woollahra, someone who rented 1998-2008 would have been $608,032 ahead, but a homeowner 2007-2017 comes out $303,771 on top.

Naturally, the financial pros of renting also depend on a tenant renting an affordable home and ensuring they invest the funds that might otherwise be paid into a mortgage.

Renting/investing instead of buying won’t always be the better option, but with any investment strategy, it’s worth looking at the broader picture.

Jo Masters is mindful of the need to see beyond home ownership as the sole way to create future wealth. She says: “We shouldn’t be pushing an entire generation into unsustainable debt levels – we need to change the wealth creation narrative to explore options other than property.”

If you are considering the pros and cons of renting and want to investigate investment strategies, contact United Global Capital today

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)

Australian Property

In the last week of April, property advisers Urban Property Australia (UPA) reported that they believe the housing market in Melbourne, at least, would stabilise in the second half of 2019.

The claim is based on several factors: Melbourne’s rising population, an expectation of a rates cut, and resilient apartment prices. UPA suggests that the shelving of a few residential developments has helped this along.

Then, at the start of May, the Australian Financial Review followed up with news that Sydney price falls might be easing too.

Reuters is also getting in on the potential good news act, reporting on 1 May that the drop in housing prices may be “past the worst”. Reuter’s information comes from CoreLogic, indicating that though prices area still falling, they’re not doing so as quickly as before.

At around the same  time, C21 Chairman Charles Tarbey told REB that “so-called property experts” had been trash-talking the industry with their predictions of crashes, creating inaccurate price predictions and more negative fallout rather than focusing on the positives.

All in all, there’s some growing feeling that the reforms already made to lending criteria, some increase in credit availability, predicted lower interest rates and perhaps buyers seeing the potential of entering the market now, might lead to house prices stabilising at least in some states and key cities over the next six months.

If you are thinking of buying or selling property or you are unsure of how well your property portfolio is positioned in the current changing market, contact United Global Capital today on 03 8657 7640 or email info@ugc.net.au for a no cost, no obligation consultation and learn how you can position yourself for success.

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)

Rental prices

We all know housing prices are taking a hit in 2018-19, with Melbourne and Sydney particularly affected. And while real estate sank by an average of around 4.8% in 2018, rents have risen.

Property Observer gave several reasons for the price pressure in the rental market, including how the housing price drop is depressing demand for construction combined with the growing demand for student housing.

News.com.au also alleged that landlords were opportunistically raising rents, quoting figures from rent.com.au to show how February rent figures rose 3.8% in Sydney and 2.3% in Melbourne.
But while some commentators and news outlets bandy terms like ‘skyrocketing rent’, others are taking a more moderate view of the data.

Core Logic’s property report released this week shows that rents actually fell in Sydney and there were only modest rises in other capitals.

Core Logic head of research, Tim Lawless, said: “Sluggish rental conditions are likely the result of higher rental supply coupled with a reduction in rental demand. Higher supply can be attributed to the surge in investment activity over recent years, while the reduction in demand is the result of more renters converting to first home buyers.”

So while rents may be going up in places to the tune of roughly 4%, the figures are hardly rocket-fuelled.In fact, a lot of the media coverage declaring that rents were about to skyrocket comes from SQM Research’s analysis of the Australian Labor Party’s plan to end negative gearing, which MacroBusiness says incorrectly claimed that rents shot up the last time negative gearing was suspended between June 1985 and September 1987.

Instead, MacroBusiness’s Leith van Onselen says, “there is absolutely no evidence that the abolition of negative gearing in the 1980s had any discernible impact on rents” and that the undeniable rental growth in that period was largely the result of pre-existing low vacancies in Sydney (31.4% rise) and Perth (33.5% rise). In other capitals, rents fell or were flat, rather than rising as they would if the national impact of negative gearing was universal. In fact, says Van Onselen, rental growth was much higher in the periods before and after the 1985-1987 suspension of negative gearing.

Van Onselen and SQM have argued the points, but in his article, Van Onselen has brought other analysts in to debunk the argument that historically, a cessation of negative gearing will make rents soar.

The upshot is that it seems falling house prices and a potential end to negative gearing won’t bring about any kind of skyrocketing: as prices fall, renters may convert to first home buyers, which in turn will take the pressure off demand for rental properties. Rents may rise in areas where vacancies are low, but on the whole those rises can’t be said to be jet-fuelling their way to the stratosphere.

Of course, analysis of the Coalition’s budget announcement remains to be made, and then an election remains to be called and concluded, but it seems talk of skyrocketing rents is exaggerated and that while other factors may affect the property industry, the absence of negative gearing isn’t necessarily one of them.

If you are thinking of buying or selling property or you are unsure of how well your property portfolio is positioned in the current changing market, contact United Global Capital today on 03 8657 7640 or email info@ugc.net.au for a no cost, no obligation consultation and learn how you can position yourself for success.

Brett Dickinson

Brett Dickinson

Director of Global Property at United Global Capital
LREA, DipFinServ
Brett is a Licensed Real Estate Agent and manages United Global Capital’s property projects and client acquisitions.
Brett Dickinson

Latest posts by Brett Dickinson (see all)