Market Watch: Capital needed as property booms

PIMCO: More Australian Bank capital needed as property booms... Foreign buyers fuelling demand for Australia’s most expensive homes... Analyst: Regulators will crack down on lending practices...

Market Watch: Capital needed as property booms
PIMCO: More Australian Bank capital needed as property booms
According to an article from Bloomberg, the Pacific Investment Management Co. (PIMCO) says regulators should consider pushing banks to issue equity capital to protect against risks of a property boom, which is causing troubling times for regulators to lower interest rates.

With the Australian economy facing significant risks to the property market and consumers who take absorbed a huge amount of debt, Robert Mead, head of portfolio management in Australia, is saying that banks should sell shares to improve the balance sheets of mortgage lenders, which would ostensibly assist in deleveraging the country’s economy, according to Mead.

The RBA recently held its overnight cash rate target at a record-low 2.25 percent this month. Mead added the potential ramifications from a housing bubble may be a reason for the policy makers to resist more rate cuts as they seek to guide the economy’s transition after a mining boom.

“The Australian economy needs to rebalance,” he said. “The RBA must not be sidelined due to property market exuberance from playing a central role in helping this occur.”

Foreign buyers fuelling demand for Australia’s most expensive homes
Foreign buyers in Sydney and Melbourne have helped drive a steep spike in turnover for the country's most expensive homes, according to property group Ray White. A record 19 homes valued at more than $15 million each changed hands in Sydney during 2014. 

The properties, which included the former home of Ron and Odetta Medich which sold for $37 million, and hilltop mansion Villa del Mare which went to a Chinese billionaire for $39 million, sold for a combined value of $433 million.

According to the article in the Australian Financial Review, almost 75 per cent of homes selling for more than $20 million went to foreign buyers.

"The increase in foreign investment activity has resulted in a sizeable increase in high-ticket property changing hands with the volumes increasing," Ray White Commercial research director, Vanessa Rader, said.

Melbourne achieved 74 sales of more than $5 million in 2014 while Queensland also recorded a "sizeable increase" in the number of big-ticket transactions with 33 sales in 2014 above $5 million, mainly in Brisbane and the Gold Coast.

Analyst: Regulators will crack down on lending practices
An analyst estimates regulators will crack down on lending practices, as property prices across major cities like Sydney and Melbourne continue to soar at almost record-levels.
"More importantly house price multiples have also expanded with median dwelling prices in Sydney now 10.3 times median household disposable income," Jonathan Mott said in a research note to clients, as quoted in Fairfax Media.
Dwelling values jumped 57 per cent in Sydney and 42 per cent in Melbourne since the pre-crisis levels of 2007.
The Financial Review reported among the banks that emerge to be big winners of the property boom, mortgage lender Westpac appeared to be on top of the investment property category with a $143bn loan book. Commonwealth Bank of Australia has the overall largest owner-occupier loan book at $230bn. Read more here