Housing market soft for two more years due to tighter lending conditions

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Housing market soft for two more years due to tighter lending conditions

The residential property market will remain soft for up to two more years as banks scramble to find clarity around the credit lending standards, residential experts said.

While the market was now more “normal” after a five-year residential boom, the low-growth environment will be around for a while until “beyond the end of next year” after federal election, said Stockland managing director Mark Steinert.

“It’s all about credit availability. Ultimately the banks hold the key here,” he said at Citi’s annual investment conference in Sydney on Wednesday.

“Their capacity for really changing that is limited, with a big focus from the Australian Prudential Regulation Authority and the Reserve Bank on household debt.”

On the flip side, the cooling market means construction costs may fall and not escalate at 4 to 6 per cent annually, ...
On the flip side, the cooling market means construction costs may fall and not escalate at 4 to 6 per cent annually, apartment developer Crown Group chief executive Iwan Sunito said.

rhomer@fairfaxmedia.com.au

“It will be a lot easier if we can get a lot more clarity for borrowers so they now what they will get in the envelope…it takes two to three times longer to get a loan…and some of that is about people learning what all the new requirements are for example household expenditures.”

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But clarity on credit lending and supply was unlikely to improve dramatically in the next year two years signalling that the dampened residential development and trading environment would continue to persist, Citibank Australia head of mortgages risk Stuart Veitch said.

“Precisely what the expectations are around expense clarifications are [still] not clear, banks are having to second guess and get in early….until we get some experience with what we see and a credit decision process, there will be messiness around that,” he said.

“It will be 12 to 24 months before banks give [more] clarity.”

In more worrying signs of cooling, CBRE residential chairman, Justin Brown said inquiries to buy homes had dropped off significantly in the past two months, a contrast to the start of the year, when house prices had just started to taper off.

“What we found surprising, coming into this year was inquiry levels were still very high, but in the last couple of months, it has dropped off significantly, it all comes down to confidence… it’s not that the buyers aren’t there, but the confidence is more weighted,” he said.

“In real terms, it will be around this time next year that we will see more light at the end of the tunnel.”

On the flip side, the cooling market means construction costs may fall and not escalate at 4 to 6 per cent annually, apartment developer Crown Group chief executive Iwan Sunito said.

“We don’t have to chase builders as much as we used to do.”

But like other developers and agents, Mr Sunito hoped credit supply will improve even for foreign buyers.

While Crown has managed to replace some of its retreating Chinese buyers with new Southeast Asian buyers such as those from Cambodia, Vietnam and Indonesia who have been funded by their local banks, a departure of foreign buyers did not bode well for the supply of new apartments, Mr Sunito says.

“I am hoping the banks will lower the lending barriers to foreign buyers…as for growth, Sydney will continue to grow but it will be down to single digits.”

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