Following caution from economists, regulators, and credit rating agencies about prospective housing oversupply and related risks, Westpac has been quick to reassure stakeholders, stating that construction of new apartments in Sydney and Melbourne is in line with the cities’ demand.
According to George Frazis, head of Westpac’s flagship consumer bank, in the next two years Sydney will expect to face a continuing shortage of homes, while Melbourne will start to experience slower price growth as supply finally meets demand. During this period, there will be about 10,000 new apartments made available in Sydney and 16,000 in Melbourne. But Frazis said the major bank is not buying into oversupply fears.
“If you look at NSW and Sydney, we still have a structural shortage of housing in Sydney because of the population growth and the pent-up demand,” Frazis told BusinessDay. “
Even if we look at what’s coming online over the next year or two, we’ll still have structural undersupply.”
In the case of Melbourne, he said that approaching market equilibrium should stabilise the price hike without any negative impact on customers. As Victoria is anticipating continuing population growth in the medium term, more housing would be required.
Last month, both the Reserve Bank of Australia (RBA
) and the Australian Prudential Regulation Authority
(APRA) spoke of the potential risks and difficulties following the surge in apartment supply. AMP Capital also predicted a drastic fall in prices by 2018, between 15 and 20%. Despite this, an RBA study released last month stated that unless prices fall by more than 25%, bank losses should remain “very low”, and Frazis has said that Westpac has “absolutely no concerns in our book about the inner-city apartments."
But there is no denying that the major bank has maintained a more conservative approach for the inner-city units, having recently lowered its exposure, and according to Frazis, valuations of some Melbourne units being settled were lower than the purchase price. Still, compared to the average across the bank's mortgage book, the proportion of inner-city apartment loans more than 90 days behind their repayments was lower.
Frazis oversees Westpac’s consumer banking unit, which is its biggest division. Last year, it added $28 billion in new mortgage lending, and grew by 3% in customer numbers. Westpac is expected to begin offering Google’s Android Pay to customers before the end of 2016, to maintain competitive advantage.