Shifts in Australian Property Market: Cooling Prices and Rising Private Credit
In recent developments, the Australian real estate market is undergoing significant shifts as interest rate hikes begin to impact borrowing capacities, according to reports by industry experts.
Peter Hannam highlights that despite national home prices reaching record levels, affordability issues and increased borrowing costs are likely to cool the market. Tim Lawless from CoreLogic observed a slowdown in the pace of home value increases, a trend that became evident before the recent Reserve Bank interest rate rise. “We’re still expecting property prices to rise – just nowhere near as fast,” stated Lawless, indicating a cautious but steady outlook.
The analysis by Commonwealth Bank of Australia (CBA) suggests a stark affordability crisis, with Sydney being notably impacted, where the median dwelling price is over five times the typical dual-income household earnings. Harry Ottley from CBA remarks, “It is likely Sydney is approaching affordability constraints in terms of dwelling price growth.”
In contrast, Sally Tindall from RateCity provided a different perspective, noting that incomes have not kept pace with the soaring mortgage repayments, which are set to jump almost 52% following the latest rate increase. This has led to a significant reduction in borrowing capacity, with the average family now able to borrow over $275,000 less.
Amid these constraints, private credit lenders are finding opportunities, as reported by Lewis Jackson. Banks have become hesitant in higher-risk lending, paving the way for private credit to expand their presence in the commercial property market. Qualitas, an Australian real estate specialist, has seen a sharp increase in funds under management, with significant contributions from prestigious investors like the Abu Dhabi Investment Authority. Steve Bulloch from PGIM Real Estate also noted a surge in institutional investor interest, seeking diversification through real estate investments.
Non-bank lending, although still a small portion of the financial assets in Australia, has been on the rise, reaching A$600 billion in assets last year. This growth caters to the demand for credit in sectors like residential and commercial construction, where banks have become more cautious.
The shift towards private lending comes with its own set of dynamics. While borrowers face higher costs, investors are attracted by the returns, which can range from 9% to 11%, as pointed out by Paul Notaras from Barings Real Estate Australia.
Despite the openness to alternative lending, the market remains selective, focusing on sectors like the under-supplied residential market and resilient industrial properties. Andrew Schwartz from Qualitas mentioned that traditional financiers have become more restrictive, hence the rise in proposals for financing office spaces, a segment that seems less compelling due to the changing landscape of work and shopping behaviors.
In conclusion, Australia’s property market stands at a complex intersection of reduced borrowing capacities and a shift towards private credit solutions. The coming year will test the resilience of the market as it balances between cooling price growth and the innovative financial structuring offered by non-bank lenders.
References:
Responses