Morning Briefing: Chinese home buying in Australia is easing, Credit Suisse says

Chinese home buying in Australia is easing, Credit Suisse says...Aussie bank earnings slow as regulation and competition bites

Chinese home buying in Australia is easing, Credit Suisse says

 (Bloomberg) -- Chinese demand for Australian property, which has helped propel the price of an average Sydney house to about A$1 million ($720,000), is waning as an economic slowdown at home dents confidence, according to Credit Suisse Group AG.

Falling auction clearance rates in Sydney and Melbourne, two of the most popular destinations for purchasers from China in Australia, suggest there are fewer cashed-up foreign buyers, Credit Suisse analysts Damien Boey and Hasan Tevfik said in a Nov. 3 report. China’s surprise currency devaluation in August has dimmed consumer confidence and appetite for overseas property worldwide, they said.

Home values in places such as Sydney, Vancouver and parts of the U.S. have been surging as Chinese buyers seeking a safe haven for their cash circumvent controls at home to pile into properties abroad. In Sydney, home values jumped 44 percent in the three years to September, spurred by record-low interest rates and a stream of buyers from China who were estimated to be snapping up almost a quarter of the city’s new homes.
“Chinese demand seems to have flattened out,” the Credit Suisse analysts said, referring to the Australian market. “It is the cyclically poor condition of the Chinese middle-to-upper class which is driving the slowdown in property buying abroad.”

In recent months, the proportion of home auctions in Sydney that successfully found a purchaser has plummeted to the mid-60 percent range from more than 90 percent earlier in the year as buyers balked at prices and the banking regulator clamped down on mortgage lending. Most homes in Sydney are sold at auction.

The waning confidence among Chinese buyers could dim their appetite for global property by 30 percent in 2015, said Sydney- based Boey and Tevfik. That’s based on the correlation of Chinese consumer confidence with growth in U.S. all-cash home sales, they said.

Tevfik said in a report in May that Chinese buyers could more than double their outlay on Australian property to A$60 billion in the six years to 2020. They were on course to snap up 20 percent of new homes nationwide by 2020, up from 15 percent, he said at the time.

There’s little timely or accurate data on foreign acquisitions of property in Australia, and in the long term, Chinese purchases of homes overseas will “trend upwards,” the Credit Suisse analysts said in their latest report.

Aussie bank earnings slow as regulation and competition bites

(Bloomberg) -- Profit growth at Australia’s largest banks is slowing after a multi-year run of record earnings, as a sluggish economy prompted the lenders to set aside more money for bad debts.

Westpac Banking Corp., the country’s second-largest lender by market value, Monday posted a 3 percent increase in cash profit to A$7.82 billion ($5.6 billion) in the year ended Sept. 30, the weakest increase since 2009. It follows lower-than- expected earnings at two of its main competitors last week.

Australia’s largest four banks are staring at slowing earnings growth as competition intensifies and regulation is tightened. The lenders have raised almost A$20 billion this year to meet regulatory requirements partly intended to bolster them to face any downturn in the housing market. They have also increased mortgage rates, blaming the cost of holding more capital.

“The strong run in Australian bank profits has ended and we’ll probably see a slower pace of growth for some time to come,” Shane Oliver, a Sydney-based global strategist at AMP Capital Investors Ltd., said by phone. “The tailwind from falling bad-debt charges is behind us, as is the easy growth from mortgage lending.”

AMP Capital, which manages A$113 billion, is advising investors to hold fewer bank shares than are represented in the benchmark indexes, Michael Price, the head of fundamental equities at the investment firm, said in an interview last month.

Bad-Debt Charges

National Australia Bank Ltd. missed profit expectations and Australia & New Zealand Banking Group Ltd. reported its slowest profit growth in seven years. Commonwealth Bank of Australia, which has a June fiscal year, reveals quarterly earnings on Nov. 5. The lender in August reported its weakest annual profit growth since 2012.

For Westpac, it was the slowest profit increase since an 8 percent drop in pro-forma cash earnings in the fiscal year ended 2009 as bad-debt charges are now eating into profitability after years of declining. The Sydney-based lender posted a 16 percent increase in the measure to A$753 million, the first rise since 2012, according to earnings statements.

Bad-debt charges at the four banks rose 9.5 percent to a combined A$3.2 billion for fiscal 2015, based on a compilation of their annual filings. The measure is climbing, prompting lenders to set aside more funds as they brace for an increase in sour loans on expectations that asset quality will decline after years of improvement.

Westpac said it saw an increase in consumer-loan write- offs, while National Australia said it was raising the provisions for certain sectors such as dairy in New Zealand.

Squeezed Margins

Higher capital and increased competition is also hurting their net interest margins, a measure of lending profitability. National Australia’s net interest margin fell to a record low for the year ended Sept. 30. Westpac managed to hold it at 2.08 percent, while the measure fell 9 basis points to 2.04 percent for ANZ.

The cost of holding more capital also led the four lenders to raise mortgage rates by 15 basis points to 20 basis points to protect margins.
Shares in the lenders have lost ground this year, with the bank index down 9.6 percent, on course for its first annual drop since 2011. The benchmark S&P/ASX 200 Index has fallen 3.8 percent this year.