CBA says house prices could fall by 32%
Australia’s biggest bank has warned house prices could slide up to 32 per cent if a COVID-19-induced recession drags on to 2022, while setting aside an additional $1.5 billion to support customers affected by the crisis.
Commonwealth Bank of Australia today announced additional credit provision of $1.5 billion to deal with potential long-term impacts of COVID-19, with the bank having committed to $9 billion worth of support measures to date.
CBA said it had received repayment deferral requests on around 71,000 business loans, 144,000 home loans and 25,000 personal loans as it experienced an 800 per cent increase in calls to its financial assistance line.
While the support has been welcomed by borrowers, CBA’s forecasts would provide little comfort, with house prices expected to fall 11 per cent in a best case scenario, and to plunge 32 per cent in a worst case.
“Given an unprecedented set of circumstances which are still unfolding and evolving, a definitive assessment of the longer term outcomes of the COVID-19 pandemic and the consequent economic and societal impacts is difficult at this stage,” the bank said in a statement to the ASX.
“The forward looking adjustment has been determined based on a range of plausible economic and industry sector stress factors, taking into account the mitigating impacts of government and industry assistance packages and support, including loan repayment deferral arrangements.”
The bleak prediction from CBA follows a similar assessment provided by the Reserve Bank of Australia, which said survey information showed more than half of respondents expect prices to decline over the next 12 months.
In the first three months of 2020, just 10 per cent of respondents expected prices to fall.
The RBA said the lifting of restrictions to allow home opens would likely provide support to the housing market in the near term, but continuing economic uncertainty was likely to result in low transaction volumes in coming months.
In the rental market, the RBA said its data showed market conditions had deteriorated markedly, with listings increasing as a result of properties being offered on short-stay platforms such as AirBnB being offered on traditional rental markets.
Downwards pressure is being applied to rents, with landlords providing rent relief to obtain tax relief from state and territory governments, and fewer foreign students entering Australia putting upwards pressure on vacancy rates.
The RBA said those factors would likely prolong Australia’s downturn in residential property investment, as residential building approvals decreased in March, while demand for new dwellings declined sharply.
“Greenfield lot sales declined a little in Sydney in the March quarter and remained flat in Melbourne; cancellation rates had also edged up in these cities,” the RBA said.
“Nationally, lot sales increased a little in the March quarter, but remained relatively low and are expected to decline over the year ahead.
“These indicators suggest continued weakness in dwelling investment in the near term.”
CBA also announced today it had sold a 55 per cent interest in Colonial First State to global investment fund KKR, in a deal worth $1.7 billion.
The bank said the transaction was consistent with its strategy of focusing on its core banking businesses.