The Unassuming Economist

The IMF’s annual report on Australia points out that:

“By some metrics, housing market conditions have cooled and credit growth to households has slowed, but risks related to house price and debt levels have not yet decreased.

Real house price gains have moderated. Indicators of current conditions such as sales volumes and the rate of turnover in the housing stock have moderated. The extent of cooling has varied considerably across capital cities. The strongest price increases continue to be recorded in Sydney and Melbourne, where underlying demand for housing remains strong. With house prices still rising ahead of income, standard valuation metrics suggest somewhat higher house price overvaluation relative to the assessment in 2015 Article IV consultation.

The flipside has been slowing growth in bank lending to households. APRA prudential guidance requiring tighter lending standards by banks, which was introduced in late 2014, has curtailed growth in riskier mortgage loans in particular and credit growth to household more broadly. At the same time, there has been some upward pressures on mortgage rates, as banks have increased capital ratios and prepared for a higher risk weight on mortgage lending. That said, household credit gaps have not yet reversed.

On the supply side, residential investment has risen to some 0.5 percent of GDP above its long term average (the ratio remains comparatively low given population and labor force growth). An above-average number of new apartments is expected to come on stream in the next year or so, mostly in the downtown areas of Brisbane, Melbourne, and, to a lesser extent, Sydney. Concerns about temporary oversupply have thus risen. But leading indicators, such as approvals of new houses and other dwellings or new residential construction starts, have started to level off after brisk increases in 2014-15. In commercial real estate, property price valuations have increased but are still within the usual range of variation over the cycle (..).“

“Property prices have been subdued, in tandem with slowing economic growth”, notes IMF’s report on Indonesia.

“Mortgage lending remains moderate (about 5 percent y-o-y) and there is no indication of a housing price bubble”, says IMF’s new report on Morocco.

The IMF’s report on Ireland says that:

“Property market conditions tightened further, mainly due to a limited supply response. Current conditions have supported robust demand recovery, but housing completions have picked up only moderately, continuing to fall well short of the underlying requirement in the economy. With the stock of properties listed for sale at a nine-year low, house price increases accelerated to 7.1 percent y/y in October 2016. The value of mortgage approvals surged by 43 percent as of November compared to a year earlier, albeit from a relatively low base and in the context of a continued contraction in the stock of outstanding mortgages. Tight housing market conditions have also led to a sharp rise in residential rents, which have now exceeded their pre-crisis peak. In response, the government introduced rental growth caps of 4 percent in Rent Pressure Zones (RPZ) starting in 2017. To ease supply constraints, the government introduced a multipronged Housing Action Plan in July to be implemented over 2017-21 (Annex II). Pressures in the commercial real estate (CRE) market remained strong, and prices increased further, particularly in the office segment. As demand is mostly funded by foreign investors and domestic equity, the exposure of the domestic banking system to the CRE market continued to decline. Despite these pressures, analysis at the time of the 2016 Article IV discussion suggested that current prices are broadly in line with fundamentals in both residential and commercial segments (…).”

 

On mitigating housing market imbalances, the report says that:

“Efforts to expand and expedite the delivery of housing and rental properties under the Housing Action Plan—a central focus of the current budget—are welcome, particularly those measures directed at mitigating supply constraints. On the contrary, the “Help-to-Buy” (HTB) scheme, set to run through 2019, raises some concerns. While temporary and relatively limited, the program provides only indirect support for supply and carries a relatively high threshold for mortgage value, suggesting scope for better targeting. At the same time, it risks exacerbating demand and pricing pressures. Plans for a phased increase in interest relief for buy-to-let landlords from the current 75 percent to 100 percent by 2021 raise similar concerns. An early review of these fiscal incentives would be warranted to ensure they are well-targeted to assist those most in need and to reduce risks of fueling demand and price pressures. To help address supply bottlenecks, consideration should be given to fasttracking the implementation of a locally levied vacant lot tax, currently expected in 2018, which aims to create incentives to increase land utilization. Administrative measures on rents, however, could dissuade construction and may prove ineffective as landlords could pass on additional costs to tenants through other fees.”

Below is an extract from the IMF’s latest report on Turkey:

“Turkish house prices have been markedly increasing for several years. The prices for homes rose cumulatively by 110 percent in nominal and 35 percent in real terms between end-2010 and July 2016. Valuation appears stretched by a number of metrics, such as price-to-income and price-to-rent ratios. The burden of household debt has also increased.

Demographic and socio-economic factors underpin the strong demand for housing. A young and rapidly growing population combined with a high and rising rate of urbanization drive demand for residential housing. In addition, the number of households has increased with a decline in average household size. Household preferences have also shifted toward newer and larger houses, with stronger construction codes.

Special sales campaigns and government stimulus have buoyed house sales since July 2016. The government launched a campaign for subsidized sales of 60,000 houses with mortgages offered at below-market lending rates and higher LTV ratios than the regulatory ceiling, in addition to applying moral suasion on banks to lower mortgage rates. Following the adoption of these measures, total house sales rose by 2 percent year-on-year in August. Since then, the LTV ceiling was raised from 75 to 80 percent.”

 

 

Also see a separate IMF report on Understanding Turkish Residential Real Estate Dynamics.