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Thursday, 14 December 2017

Demand for land

Lending slows

Total lending finance slipped back down to $67.8 billion in October, as APRA's cooling measures bite, the lowest total in 8 months.

Housing lending to owner-occupiers remained very solid at $20.8 billion, while major renovations activity continues to trend higher to be +14 per cent higher year-on-year. The slowdown has largely related to property investment loans. 

Having plumbed 14-year lows, personal finance has now been rising again for six months, though there are few signs of household financial stress (the average credit card balance hit a decade low this month, as reported in Reserve Bank figures and highlighted by Commsec, while the number of credit cards actually fell for the first time on record across nearly a quarter of a century of data). 

The usual meme at this point is to lament that too much lending to property investors has limited the business sector (i.e. corporate debt good, housing debt bad), but this overlooks that there are many ways to expand a business without using commercial debt.

Existing equity is one way, for example, with business profits hitting an all-time high in the third quarter. And, of course, many small businesses are started with housing equity loans. 

Indeed, business investment rose strongly over the year to September, as shown by the national accounts.

In saying that, cobbling together the figures for fixed commercial loans and revolving credit we can identify some notable trends. 

For example, lending finance to the retail sector has nosedived over the past 18 months. Perhaps this is not too much of a surprise - after all taking out debt for investment in a sector which is seeing falling sales prices and losing players by the month may not be such a wise move. 

On the other hand lending to the mining and construction sectors has surged over the past year, while investment in the services sectors looks to be rising solidly. This supports the capex data which showed services investment rising by 28 per cent since the 2013 nadir. 

Investors slowed

Drilling into the property investment loans figures we can see that APRA's moves have, for a second time, slowed this part of the mortgage market, albeit from record highs in New South Wales. 

In the Northern Territory, the bottom may be in at last!

And finally, the demand for blocks of land continues to soar, with a record $8 billion of lending over the year to October 2017.

Land prices have soared in the capital cities over the last five years, and this trend shows few signs of abating. 

The wrap

Overall, business lending is ticking along at healthy enough levels - certainly at high enough levels to keep investment in the services industries expanding

In the property lending space, the swing away from property investment loans and towards homebuyers, renovation, and land purchases continues.