There's No Housing Bubble in Australia, Heads of Big Banks SayBy
High prices are a result of supply shortfall, bank chiefs say
China capital controls causing some delays settling purchases
Soaring home prices in Australia’s biggest cities don’t necessarily mean the country is in the grip of a housing bubble, according to the heads of the nation’s biggest banks.
Testifying before a parliamentary committee, the chief executives of National Australia Bank Ltd., Westpac Banking Corp. and Commonwealth Bank of Australia all said that while they are worried about elements of the housing market, prices aren’t over-inflated.
“I would draw the distinction between a speculative bubble in prices and prices beyond what fundamentals would justify,” Westpac’s Brian Hartzer told the committee in Canberra Wednesday. A bubble isn’t occurring in Sydney or Melbourne, where house prices have risen the most, he said.
“There are increasing risks, but I still believe the answer is no,” National Australia Bank’s Andrew Thorburn said when asked if houses in Sydney and Melbourne are overpriced.
Commonwealth Bank, the nation’s largest mortgage lender, is “lending at levels we are comfortable with” across Australia, Chief Executive Officer Ian Narev told the committee when he testified Tuesday.
The bank chiefs were appearing in front of the committee, which was set up by the government to ward off calls for a more far-reaching inquiry into the financial industry, for the second time within six months. The banks have been under pressure from opposition parties after a series of scandals in their insurance and wealth divisions and concern they failed to pass on the full benefits of central bank interest-rate cuts to borrowers.
Australia & New Zealand Banking Group Ltd. CEO Shayne Elliott wasn’t directly asked about his views on the housing market when he testified Tuesday, but speaking before Christmas said that while he is cautious, he isn’t anticipating “a calamity or a disaster.”
Prices in Melbourne and Sydney have skyrocketed in recent years, fueled by record-low interest rates, increased demand from overseas buyers and tax breaks for property investors. The Organization for Economic Co-operation and Development last week said the biggest threat to Australia’s economy is a hard landing in the property market.
The rapid price growth, at a time of anemic pay increases, has made housing affordability a hot-button political issue. Victoria’s state government said March 5 it will exempt first-time buyers from paying stamp duty on properties worth less than A$600,000 ($455,000), and plans to introduce a tax on vacant residences.
Affordability problems, particularly for young people, “should be a matter of national concern,” Narev told the committee.
Prices in Sydney and Melbourne are rising because that is where jobs are being created and “we do not have long-term infrastructure,” Thorburn said.
The big four banks -- where property lending accounts for between 40 and 60 percent of the loan book -- have been tightening mortgage and development lending criteria.
The Australian Prudential Regulation Authority Tuesday wrote to all institutions urging them to “exercise particular care to ensure that they are not unduly accepting greater risk as other lenders step back’’ from residential developments.
One persistent concern has been the risk of an apartment glut developing in Melbourne and Brisbane, with overseas buyers getting caught by the clampdown on lending and the enforcement of Chinese capital controls.
Hartzer told the committee he is receiving a weekly email on key development projects and settlements are proceeding, albeit slowly. There are some problems in lower quality developments, he said.
“What we are seeing is a number of those foreign buyers who put the money down to buy the apartments are now having trouble settling and that is creating a bit of a glut in supply, which may or may not be what the local buyers want,” Hartzer said.