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House Price Boom Good For Banks In Australia, Says Moody’s

Earnings of developers and material suppliers are also set to rise, thanks to new residential construction and remodeling.

CANBERRA, Australia — Australia’s strong housing market is a bonus for banks, developers, and material suppliers, a global credit rating agency has said.

Moody’s Investors Service says for banks, robust residential mortgage growth will support their revenues, particularly when low interest rates and intense competition are weighing on net interest margins.

The earnings of developers and building material suppliers are also set to rise thanks to new residential construction and “remodeling”, senior Moody’s analyst Saranga Ranasinghe says.

Real estate investment trusts Mirvac Group and Stockland Group, and material manufacturers Boral Limited, BlueScope Steel Limited, and Infrabuild Australia Pvt Ltd all derive a significant portion of earnings or revenue from the residential market.

BlueScope Steel Limited is an Australian flat product steel producer with resources from New Zealand, Pacific Islands, North America, and Asia.

Moody’s analyst Tanya Tang says record-high housing finance approvals and construction approvals for stand-alone houses are supported by low-interest rates, government stimulus, and a rebounding economy.

Real estate agent Adrianna May poses for a photo at a newly sold property in Cronulla. Australia’s real estate sector has had to change its ways to cope with restrictions on open homes and auctions in the wake of Covid-19. (Simon Bullard/AAP Image)

“Although the government’s HomeBuilder subsidy program has now expired, the extension of the construction deadline will continue to support sector activity for the next year or more,” she said.

Moody’s drew some comfort that new loans have been large to owner-occupiers, a segment it views as having a lower credit risk and a positive for bank asset quality.

“However, banks have increased higher loan-to-value lending as government incentives have increased demand from first-time homebuyers,” it says.

National Australia Bank CEO Ross McEwan confirmed more first home buyers were getting into the market than have been seen in the past five to 10 years.

National Australia Bank is one of Australia’s four largest financial institutions in terms of market capitalization, earnings, and customers.

“In our book alone, about 16 percent of new lending is going to first home buyers,” he said. “First home buyers with low-interest rates are finding it cheaper to actually buy, as long as they have got a deposit … than it is to rent.”

He said house prices were rising across Australia, with the pandemic showing people could work from home, which was seeing a big trend to moving out of cities.

“House prices out of the main centers are going up much, much higher than those in the inner city,” he said.

But he did warn if house price rises keep going, it may see the Reserve Bank and financial regulators stepping into the market and curb activity for investor loans.

“It’s not expected at the moment,” he added.

(Edited by Vaibhav Vishwanath Pawar and Ritaban Misra)

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