The outlook for Australia’s property developers has "turned on a dime" following the weekend's shock election result and dramatic interventions from the Reserve Bank and the banking regulator.
Big developers like ASX-listed Stockland, which a week ago were anxiously eyeing the housing downturn, are now facing starkly different conditions according to analysts.
Reserve Bank governor Philip Lowe, in a speech in Brisbane, says the RBA will "consider the case for lower interest rates" when it meets in June.
Experts predict the re-elected Coalition's new First Home Buyer Deposit Scheme, proposed changes to the interest rate stress test for borrowers and the RBA's indication it may lower interest rates would all help underpin the property market.
On Tuesday the Australian Prudential Regulatory Authorities' signalled it would likely remove a requirement for banks to assess a borrowers' ability to repay a loan if interest rates rose to 7 per cent.
"Turns on a dime," Macquarie analysts said of Stockland's prospects in the new environment.
"Whilst there is likely to still be near-term attention on defaults, we believe [buyers'] ability to settle will also improve in light of a potential increase in borrowing capacity."
Property Developer Nigel Satterley has welcomed APRA's action.
Property Developer Nigel Satterley has welcomed APRA's action.CREDIT:PAT SCALA
Perth-based Nigel Satterley, who runs the country's biggest private land developer Satterley Property Group, agreed, saying APRA's proposal would give confidence and certainty to the sector.
Mr Satterley said he and other developers had met with APRA officials to discuss its proposal.
"Banks are telling us they are in a strong position to lend to creditworthy customers," Mr Satterley said. "Early modelling is indicating people can borrow $40,000 to $50,000 more."
Deutsche Bank banking analyst Matthew Wilson said the relaxation in lending standards was an instructive turnaround from APRA, which in January had said measures to maintain mortgage lending standards were “designed to be permanent.”
The market will likely embrace the signal with gusto, whilst the taxpayer will incur the moral hazard.
"APRA is now showing a willingness to fold and consider 'unnatural acts'. The market will likely embrace the signal with gusto, whilst the taxpayer will incur the moral hazard," Mr Wilson wrote.
Stockland managing director Mark Steinert said credit was the lifeblood of the economy, but over the last 18 months it has become increasingly hard to access for everyday Australians.
"This announcement provides a much needed boost for the housing market and the broader economy, and gives more people the opportunity to realise the dream of home ownership," he said.
APRA's move would go further than just deepening borrowers' pockets, said Citi, who noted only a small cohort of borrowers take loans up to their maximum capacity.
"More meaningful is the flow-on impact to confidence. Upgraders and investors alike may be spurred to increase their loan size still within the increased capacity, bringing more firepower to asset markets," Citi analysts said.
The prospect of cash rate cuts by the Reserve Bank this year could accelerate any lift in confidence, they said.
Sydney-based developer, Crown Group chairman and chief executive, Iwan Sunito said he expected a lift in confidence and a surge in buyers.
Treasurer Josh Frydenberg and Prime Minister Scott Morrison at leave the Reserve Bank after meeting governor Philip Lowe on Wednesday.
"The fundamentals in the Australian economy are sound – economic growth is solid, interest rates and inflation are low, unemployment is low – so greater flexibility by lenders will make a big difference to property buyers’ decisions to purchase this year," he said.
APRA's proposed change "clearly reduces the downside risks to housing activity" and is likely to put a bottom under house price falls this year, according to UBS analysts.
The construction sector is also hoping the changes will create new demand, a time when data reveals the industry has hit a slump.
In the March quarter, residential building fell by 2.5 per cent and was down 3.2 per cent over the year, according to the Australian Bureau of Statistics. Alterations and additions fell by 4.4 per cent in the quarter, while new residential work fell by 2.3 per cent.
Craig James, chief economist, CommSec said builders and developers need to watch fluctuating activity levels across regions while at the same time taking action to trim costs where possible.
Shane Garrett, Master Builders Australia’s chief economist, said despite the fact that Australia’s population expanded by almost 400,000 during the past 12 months, fewer new homes are being built due to the negative impact of micro-factors including the slow motion credit environment following the Hayne royal commission.
"We look forward to the quick implementation of the government’s election pledges around First Home Buyer home loans and support for small businesses," Mr Garrett said.
Source: The Age