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Policy shift hits apartments

CHANGES to the national policies on investment in inner-city apartments by major banks and mortgage insurers is proving to be a hurdle for Perth’s growing apartment market.

The downturn in the east coast inner-city apartment market, caused by higher interest rates and falling inner-city apartments sales, has caused leading bank and mortgage insurance institutions to reduce loan-to-valuation ratios and cease insuring in certain inner-city areas due to a perceived increase in risk.

The move may be designed to curb the activities of property speculators, but industry players believe the national approach is unwarranted in the Perth market.

The two main mortgage insurers, PMI Insurance and GE Mortgage Insurance, have ruled out insuring any development or apartment purchases in the postcode areas of 6000 to 6005 or West Perth, Northbridge, East Perth and Perth.

In addition, many of the major banks have tightened their lending criteria for investments units, lifting the required minimum deposit and reducing their loan to valuation ratio from 80 per cent to a level closer to 60 per cent.

As a result, finance for inner-city apartment projects and purchases has become harder to attain and has pushed some players out of the city to the suburbs.

Ashe Morgan Winthrop residential finance manager Nathan La Carva said that, as a general rule, the major lenders now would not lend more than 65 per cent for inner-city apartment property. 

With major mortgage insurers steering clear of inner-city areas, some low-documentation loan providers and securities lenders are also unable to obtain mortgage insurance, making it more difficult for some borrowers to secure finance.

Industry experts now believe that as much as 15 per cent of all loans are now low-documentation loans. Almost all low-documentation loans require mortgage insurance.

Mr La Carva told WA Business News the only banks still lending up to 80 per cent in inner-city areas were BankWest and St George.

He said there were more issues with inner-city apartment property on the east coast, which was where the bank and insurance policy decisions were being made.

Affecting the policy decisions was the relatively low resale evidence of inner city apartments in Perth, Mr La Carva said.

“There is not enough historical evidence,” he said.

According to FPD Savills sales agent Marcus Gilmore, the change in lending and insuring policy in inner-city Perth areas was a reaction to the overheating apartment markets in Sydney and Melbourne.

Mr Gilmore said that, while the policy was to be expected in the east coast market, it was surprising to see it in the WA apartment market as it was not overheating.

However, despite the challenges of finding finance for some borrowers, Mr Gilmore told WA Business News the Perth apartment market did not seem to be making a big impact overall.

He said it was slowing the number of investors buying into apartments, but this could be a long-term benefit.

“We want more owner-occupiers buying into inner-city apartments,” he said.

Inner City Housing Development Association president Laurance Goodman said the banks and mortgage insurers were reacting to the over supply in the eastern States and had not taken into account the different market conditions in Perth.

Mr Goodman said the change in policy was pushing a section of the market into the suburbs, with those most affected being young people who were not able to raise the required deposit.

“Predominantly, buyers in the market are baby boomer who are better off and the 65 per cent doesn’t affect them,” he said.

Bank policy greatly affects the composition of the apartment market. For example, banks insist developers sell 50 per cent of property off the plan and, as a result, many apartment developments are aimed at investors rather than owner-occupiers.

Mr Goodman said banks were determining the design and size of apartment developments, rather than demographics.

“I’m confident in the end banks have to listen to demographics if they want to be doing business or their numbers won’t work out,” he said.

 

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