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The chairman of an Australian bank believes the group’s lack of property exposures in the “very toppish” Sydney and Melbourne property markets strengthens its housing portfolio.
Addressing shareholders last week, BOQ chairman Roger Davis said that the recent upward trend in capital was predicated by concerns about a bubble in the property markets.
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“Especially in Sydney and Melbourne where prices are 42 per cent and 21 per cent above previous peaks, or two to three times the compound inflation rate for the period,” Mr Davis said.
“Whether this represents what punters describe as a bubble – meaning ‘a good or fortunate situation that is isolated from reality or unlikely to last’ – is questionable, although, I think we can all agree prices in these two markets are very toppish despite a housing supply imbalance in those cities.
“By contrast, in other state capitals such as Brisbane and Perth, housing prices are only 0.3 per cent and 0.8 per cent above previous highs so if there is a housing bubble, it is hard to argue it exists in these markets.”
Mr Davis said BOQ continues to be comfortable with the bank’s existing housing exposure given its strict credit standards, strong risk policies and an increasingly diversified national housing portfolio.
“Just as importantly, the bank remains underweight in the Sydney and Melbourne markets where price growth has been highest, adding further strength to the quality of our national housing portfolio,” he said.
However, the BOQ chairman said the bank was “very cognisant” of the possible adverse consequences to the general economy from any moderation in the housing cycle due to further macro-prudential tightening.
“This could potentially make the next growth cycle all that much harder to find for all banks, given the prevailing operating environment,” he said.
