Liberty Financial lifts guidance as housing market rebounds

The lender has suggested regulatory action may be needed as house prices roar back to life, after lifting its outlook for the year.

Liberty CEO James Boyle. Aaron Francis/The Australian

Liberty Financial chief executive James Boyle has expressed concern over the prospect of booming house prices in the coming years and expects the prudential regulator may need to step in to take some heat out of the market.

“It has been very strong, and stronger than expected,” Mr Boyle said of the property market’s recent recovery.

“It may normalise in the coming months; I certainly don’t think it’s a good thing for our economy if we see house prices increasing by 10 per cent-plus every year, for a couple of years.

“That kind of outcome wouldn’t be good. But we’ll have to wait and see, as we move through autumn and into winter, if it stays where it is at the moment.

After a brief COVID-19-induced dip, the property market has roared back to life in recent months, hitting fresh all-time highs in January as rates sit at record lows and confidence grows in the economic recovery.

Outgoing Stockland chief executive Mark Steinert on Thursday said housing market could shift into “chronic under-supply” in growth corridors around major cities in coming years, with newly upgraded forecasts underscoring the importance of getting policy right as the market takes off.

“That’s going to reignite the whole challenge around affordability again just when it got to a point where that could actually be addressed,” he said.

Stockland on Thursday revealed its residential business closed its strongest half-year since 2016, with settlements jumping 43.7 per cent.

Meanwhile housing developer AVJennings revealed its sales volumes were up 47.7 per cent in the six months through December, supported by the HomeBuilder grant, while non-bank home loan lender Resimac’s profit soared 86 per cent in the same half.

From forecasts of up to a 30 per cent drop last year, analysts are now tipping house prices will rise by double digits in the coming years.

Economists at CBA, the nation’s biggest bank, last week forecast an 8 per cent lift in dwelling prices this year, followed by a 6 per cent gain next year, saying Australia was “on the cusp of a boom”.

Westpac this week lifted its own forecast for dwelling prices, with the bank now expecting 10 per cent gains in both 2021 and 2022.

“The bottom line is that Australia’s housing upturn now has strong momentum that looks to be lifting further and will remain well supported by monetary conditions and an improving economic backdrop,” Westpac economists Bill Evans and Matthew Hassan said.

Prudential measures would not come until mid-2022, they predicted.

Amid a period of sustained low rates, Mr Boyle suggested the prudential regulator may need to step up and take action.

“I think the RBA position of maintaining a low official monetary rate is appropriate in an economy that needs stimulation to recover from a shock.

“It might be APRA, perhaps, that might lean in and take some more of the responsibility for what happens with house prices. But, largely, I would say this has been very well managed here since the global financial crisis, and we’d expect it to continue to be,” he said.

APRA between 2014 and 2017 put in place caps on investor lending and interest-only loan growth to cool risky lending, but has since removed such measures. Much of the recent activity in the market is believed to be from homeowners rather than investors.

In New Zealand, where house prices have risen 20 per cent in the past year, new loan-to-value restrictions have been brought in to cool the market.

From March, most borrowers will need to have a higher deposit, with homeowners expected to have enough funds to cover a 20 per cent deposit and investors double that, with a 40 per cent deposit.

The central bank is also now required to consider the impact on the housing market when making monetary and financial decisions.

The Reserve Bank, meanwhile, is monitoring the effects of its easy policy settings on the economy.

At its February board meeting, members “acknowledged the risks inherent in investors searching for yield in a low interest rate environment, including risks linked to higher leverage and asset prices, particularly in the housing market” but concluded that there were “greater benefits for financial stability from a stronger economy, while acknowledging the importance of closely monitoring risks in asset markets”.

Mr Boyle’s comments came after the non-bank lender lifted its full-year guidance by 20 per cent amid a stronger economic outlook and the booming housing market.

Liberty now expects full-year net profit to be “in excess of” $200m, up from the $165.6m it had forecast in its prospectus before its December listing.

The outlook is subject to a range of uncertainties, in particular the duration and severity of the COVID-19 pandemic, it added.

For the six months through December, its statutory net profit jumped to $83m, up from $74.3m in the prior corresponding period.

After removing one-off expenses related to its IPO and non-cash amortisation, its underlying net profit rose 58 per cent to $117.7m over the same period.

The lender’s customers impacted by COVID-19 dropped to 2 per cent of the portfolio as at December 31, compared to 10 per cent at the end of June.

Liberty debuted on the ASX in December, with its shares jumping almost 17 per cent to $7 in its first day of trade compared to a listing price of $6.

Liberty shares closed up 1.2 per cent to $8.20.