sweden : falling house prices in the land of trolls · 2018. 2. 20. · banks do very little high...

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Sweden’s housing edifice is similar to Australia’s

Which one is Australia?

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Sweden

House prices in Sweden have been falling since the middle of 2016 Maybe Sweden is a prelude to Australia; the housing banking edifice

frighteningly similar 10% -15%

Australian banks Secondary effects on economy

effect are more interesting Developers get smashed

We don’t read much about Sweden: summer of reading we have been peripherally interested for years the closest living relative to Australia …..and house prices have just started to fall; 9% inmonths to January articles and analysis and warnings bearish narratives take a long time to die and the Australian housing market has been a widowmaker trade for “shoAustralia but there are few important differences

Which one is The charts show the growth in nominal house prices and the price to rent (price to income shows the same trend) and we’ve based the latest data (Q42017) to 100%, so the figures before then reflect the ratio of each market to the lashave followed the same path; they are

House prices, Australia, Sweden & Stockholm. Base 100 Q4, 2017

Australia

_____________________________________________________________________________________________Elstree Investment Management Limited (ABN: 20 079 036 810)

Sweden: falling house prices in the land of trolls

House prices in Sweden have been falling since the middle of 2016Maybe Sweden is a prelude to Australia; the housing banking edificefrighteningly similar

15% falls in house prices don’t terminally damageAustralian banks Secondary effects on economy

are more interestingDevelopers get smashed

We don’t read much about Sweden: summer of reading Scandiwe have been peripherally interested for years the closest living relative to Australia …..and house prices have just started to fall; 9% in

to January 2018 articles and analysis and warnings bearish narratives take a long time to die and the Australian housing market has been a widowmaker trade for “shoAustralia but there are few important differences

The charts show the growth in nominal house prices and the price to rent (price to income shows the same trend) and we’ve based the latest data (Q42017) to 100%, so the figures before then reflect the ratio of each market to the lashave followed the same path; they are


Australia Sweden Stockholm


Level 10, 30 Collins Street Melbourne VIC 3000Telephone: 61 3 8689 1348Email: [email protected]

: falling house prices in the land of trolls

House prices in Sweden have been falling since the middle of 2016Maybe Sweden is a prelude to Australia; the housing banking edificefrighteningly similar

falls in house prices don’t terminally damage

Secondary effects on economyare more interesting

Developers get smashed

We don’t read much about Sweden: Scandi noir books is correct:

we have been peripherally interested for years the closest living relative to Australia …..and house prices have just started to fall; 9% in

2018 with a bounce in February.articles and analysis and warnings bearish narratives take a long time to die and the Australian housing market has been a widowmaker trade for “short sellers” Australia but there are few important differences

The charts show the growth in nominal house prices and the price to rent (price to income shows the same trend) and we’ve based the latest data (Q42017) to 100%, so the figures before then reflect the ratio of each market to the lashave followed the same path; they are


Stockholm


Collins Street Melbourne VIC 3000Telephone: 61 3 8689 1348Email: [email protected]


House prices in Sweden have been falling since the middle of 2016Maybe Sweden is a prelude to Australia; the housing banking edifice


Secondary effects on economy from the are more interesting

We don’t read much about Sweden: it’s small, noir books is correct:

we have been peripherally interested for years the closest living relative to Australia …..and house prices have just started to fall; 9% in

a bounce in February.articles and analysis and warnings about how this is relevant to Australia bearish narratives take a long time to die and the Australian housing market has been a widow

over the past 5 years. Australia but there are few important differences

The charts show the growth in nominal house prices and the price to rent (price to income shows the same trend) and we’ve based the latest data (Q42017) to 100%, so the figures before then reflect the ratio of each market to the last data point (ie both house price growth and price to rent have followed the same path; they are not at the same

Perce

nt (%

)


Collins Street Melbourne VIC 3000Telephone: 61 3 8689 1348 Email: [email protected]




from the unwinding of the

small, it’s cold, Volvo has been sold to the Chinese and if our noir books is correct: it’s full of serial killers and sociopaths.

we have been peripherally interested for years in Sweden the closest living relative to Australia …..and house prices have just started to fall; 9% in

a bounce in February. The fallabout how this is relevant to Australia

bearish narratives take a long time to die and the Australian housing market has been a widowover the past 5 years.

Australia but there are few important differences. They’re

The charts show the growth in nominal house prices and the price to rent (price to income shows the same trend) and we’ve based the latest data (Q42017) to 100%, so the figures before then

t data point (ie both house price growth and price to rent at the same absolute

0%

20%

40%

60%

80%

100%

120%

Perce

nt (%

)


Collins Street Melbourne VIC 3000




unwinding of the

cold, Volvo has been sold to the Chinese and if our full of serial killers and sociopaths.

in Sweden because the closest living relative to Australia …..and house prices have just started to fall; 9% in

The fall looks like continuing.about how this is relevant to Australia

bearish narratives take a long time to die and the Australian housing market has been a widowover the past 5 years. There are a number of similarities with

. They’re best demonstrated in the charts below.


t data point (ie both house price growth and price to rent absolute levels)

House price / rent. Australia and Sweden. Base 100% Q4, 2017

Sweden

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Swedish or

unwinding of the wealth

cold, Volvo has been sold to the Chinese and if our full of serial killers and sociopaths.

its’ Housing/Banking edifice the closest living relative to Australia …..and house prices have just started to fall; 9% in

looks like continuing. about how this is relevant to Australia over the next 6 months:

bearish narratives take a long time to die and the Australian housing market has been a widowThere are a number of similarities with best demonstrated in the charts below.


t data point (ie both house price growth and price to rent s).


Sweden Australia

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House prices in Sweden have been falling since the middle of 2016 Maybe Sweden is a prelude to Australia; the housing banking edifice is

Swedish or

wealth

cold, Volvo has been sold to the Chinese and if our full of serial killers and sociopaths. Despite

Housing/Banking edifice the closest living relative to Australia …..and house prices have just started to fall; 9% in

We think we’ll see over the next 6 months:

bearish narratives take a long time to die and the Australian housing market has been a widowThere are a number of similarities with best demonstrated in the charts below.


t data point (ie both house price growth and price to rent


cold, Volvo has been sold to the Chinese and if our Despite this,

Housing/Banking edifice is the closest living relative to Australia …..and house prices have just started to fall; 9% in the 6

We think we’ll see over the next 6 months:

bearish narratives take a long time to die and the Australian housing market has been a widow There are a number of similarities with best demonstrated in the charts below.


t data point (ie both house price growth and price to rent

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Economic drivers similar

WBC/CBA =Svenska HandelsbankHB

Relatively sensible banks

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drivers similar The economies, although structurally different, lot of stuff to the Chinese

UnemploymentEconomic growth (aveHousehold debtHousehold debt/GDPNet wealthAve Income per capitaHousing credit

In summary, both are other assetsconditions reasonablygovernments or banks absorbingon Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: https://www.livewiremarkets.com/wi

Handelsbank

The banking housing interface is uncanny; Sweden has 4 major banks, all with large housing based balance sheets adon’t do a lot of high LVR lending. The charts below show the both Australia

sensible banks Unlike previous housing market disasters (such as Ireland or Non Prime US crisis) Australian (because it is banned) and you can only opt for interest only loan(or 50% in some circumstances). lending of >80%

LVR <60%

LVR Australian bank lending by percentage 2011 to 2017

2011 2012


The economies, although structurally different, lot of stuff to the Chinese

Unemployment Economic growth (aveHousehold debt/disposable incomeHousehold debt/GDPNet wealth/Income (2014)Ave Income per capitaHousing credit growth

In summary, both are other assets. Typically these typesconditions reasonablygovernments or banks absorbingon Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: https://www.livewiremarkets.com/wi

The banking housing interface is uncanny; Sweden has 4 major banks, all with large housing based balance sheets adon’t do a lot of high LVR lending. The charts below show the both Australia (left hand chart

Unlike previous housing market disasters (such as Ireland or Non Prime US crisis) Australian banks do very little high LVR lending. In Sweden there is almost no >85% LVR lending (because it is banned) and you can only opt for interest only loan(or 50% in some circumstances). lending of >80% requires mortgage insurance. The significance of the 80%

LVR 60% to 85%


2012 2013 2014 2015



The economies, although structurally different, lot of stuff to the Chinese. The table below shows some of the key economic drivers of house prices

Economic growth (average 2007disposable income

Household debt/GDP /Income (2014)

Ave Income per capita (USD) growth

In summary, both are rich, employed, Typically these types

conditions reasonably well. Losses are governments or banks absorbingon Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: https://www.livewiremarkets.com/wi

The banking housing interface is uncanny; Sweden has 4 major banks, all with large housing based balance sheets adon’t do a lot of high LVR lending. The charts below show the

(left hand chart) and Sweden (right hand chart

Unlike previous housing market disasters (such as Ireland or Non Prime US crisis) do very little high LVR lending. In Sweden there is almost no >85% LVR lending

(because it is banned) and you can only opt for interest only loan(or 50% in some circumstances).

requires mortgage insurance. The significance of the 80%

LVR >85%


2015 2017



The economies, although structurally different, . The table below shows some of the key economic drivers of house prices

2007-2017) disposable income(2016)

employed, high income countries with lots of Typically these types of economies weather poor, but

. Losses are absorbed by households getting governments or banks absorbing losses. The very sensible Shane Oliver provides some fuon Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: https://www.livewiremarkets.com/wires/australian

The banking housing interface is uncanny; Sweden has 4 major banks, all with large housing based balance sheets and all very profitable don’t do a lot of high LVR lending. The charts below show the

and Sweden (right hand chart


(because it is banned) and you can only opt for interest only loan(or 50% in some circumstances). Australia has higher


LVR >85%



The economies, although structurally different, have similar drivers of housing. The table below shows some of the key economic drivers of house prices

Australia5.4%2.6%191%123%366%49.9k

6%

income countries with lots of of economies weather poor, but

absorbed by households getting The very sensible Shane Oliver provides some fu

on Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: res/australian-s-love

The banking housing interface is uncanny; Sweden has 4 major banks, all with nd all very profitable

don’t do a lot of high LVR lending. The charts below show the and Sweden (right hand chart


(because it is banned) and you can only opt for interest only loanAustralia has higher initial




have similar drivers of housing. The table below shows some of the key economic drivers of house prices

Australia 5.4% 2.6% 191% 123% 366% 49.9k

6%

income countries with lots of of economies weather poor, but

absorbed by households getting The very sensible Shane Oliver provides some fu

on Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: love-affair-with

The banking housing interface is uncanny; Sweden has 4 major banks, all with nd all very profitable (sound familiar?

don’t do a lot of high LVR lending. The charts below show the proportion of new lending by and Sweden (right hand chart).


(because it is banned) and you can only opt for interest only loans when your LVR has reached 70% initial LVR levels, but almost all Au


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have similar drivers of housing prices . The table below shows some of the key economic drivers of house prices

Sweden4.1%1.7%177%86%

532%51.9k

income countries with lots of household of economies weather poor, but non catastrophic, economic

absorbed by households getting poorer, rather tThe very sensible Shane Oliver provides some fu

on Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: with-debt-how

The banking housing interface is uncanny; Sweden has 4 major banks, all with “AAfamiliar?). More importantly, they

proportion of new lending by


s when your LVR has reached 70% levels, but almost all Au

requires mortgage insurance. The significance of the 80% LVR limit is important in

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prices and both . The table below shows some of the key economic drivers of house prices

Sweden 4.1% 1.7% 177% 86%

532% 51.9k

7%

household debt, but lots of non catastrophic, economic

poorer, rather tThe very sensible Shane Oliver provides some further detail

on Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: how-big-is-the-risk

AA” ratings, all with ). More importantly, they

proportion of new lending by LVR for

Unlike previous housing market disasters (such as Ireland or Non Prime US crisis) Swedish and do very little high LVR lending. In Sweden there is almost no >85% LVR lending

s when your LVR has reached 70% levels, but almost all Australian bank

limit is important in

and both sell a

. The table below shows some of the key economic drivers of house prices

debt, but lots of non catastrophic, economic

poorer, rather than rther detail

on Australia’s “lots of debt, but lots of assets” conundrum at the link below. Read it; it’s good: risk

ratings, all with ). More importantly, they

LVR for

Swedish and do very little high LVR lending. In Sweden there is almost no >85% LVR lending

s when your LVR has reached 70% stralian bank

limit is important in

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How they are different?

Not very expensive to own houses in Sweden

The regulator strikes back

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limiting losses, to find a bank that has gone broke doing primeto find one.

How they are We think that the biggest regulatorof housing rates areSweden does not use the Euro)rates on housingof Australia Stockholm apartment dwelling

expensive to own houses in

In Australia, the “interest cost” relatively stable over the past 13 years (disregarding the repayment of principal).lower interest rates is eatdespite the large increase in housing prices. Lots of homeownersas the real cost of owning a houseup housepressure on houseregulator issue. You can build as many houses as you like, but if finance is relatively cheap and available, it will overcome anyget concerned about.

The regulator If the regulator wants lower house pricesharder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put hard-ish limits on debt to income ratios and from next year, they will require higher amortisation ratios (which will increase the total payment by the lender). p.a. and are not allowed interest only loans until the LVR gets to 70%. It gets tougher next year and

Borrowing rates Australia and Sweden 2005 to Q4 2017


limiting losses, particularly if there has been any to find a bank that has gone broke doing primeto find one.

We think that the biggest regulator’s response,of housing loan interest rates since 2005rates are influenced by the proximity of the negative interest rate regime in Europe (even though Sweden does not use the Euro)rates on housing. More interesting is the chart of Australia we have used Stockholm apartment dwelling

In Australia, the “interest cost” relatively stable over the past 13 years (disregarding the repayment of principal).lower interest rates is eatdespite the large increase in housing prices. Lots of homeownersas the real cost of owning a house

house prices as the servicing cost fpressure on house regulator has to step in. We thi

ou can build as many houses as you like, but if finance is relatively cheap and available, it will overcome any increase

erned about.

If the regulator wants lower house pricesharder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put

ish limits on debt to income ratios and from next year, they will require higher amortisation s (which will increase the total payment by the lender).

p.a. and are not allowed interest only loans until the LVR gets to 70%. It gets tougher next year and


Sweden Australia



particularly if there has been any to find a bank that has gone broke doing prime

We think that the biggest difference , is due to the

interest rates since 2005influenced by the proximity of the negative interest rate regime in Europe (even though

Sweden does not use the Euro), so Sweden has a negative cash rate leading to very low interest . More interesting is the chart

we have used the average house price and for SwedenStockholm apartment dwelling.

In Australia, the “interest cost” relatively stable over the past 13 years (disregarding the repayment of principal).lower interest rates is eaten up in higher housing pricedespite the large increase in housing prices. Lots of homeownersas the real cost of owning a house

prices as the servicing cost f prices and sometimes that turns into near bubbles.

step in. We think ou can build as many houses as you like, but if finance is relatively cheap and available, it will

increase in supplyerned about.

If the regulator wants lower house pricesharder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put






particularly if there has been any to find a bank that has gone broke doing prime

difference between the 2 countriesis due to the absolute level of

interest rates since 2005. It clearly influenced by the proximity of the negative interest rate regime in Europe (even though

, so Sweden has a negative cash rate leading to very low interest . More interesting is the chart

the average house price and for Sweden

In Australia, the “interest cost” (red line in right hand chartrelatively stable over the past 13 years (disregarding the repayment of principal).

en up in higher housing pricedespite the large increase in housing prices. Lots of homeownersas the real cost of owning a house (and assume that the principa

prices as the servicing cost falls. In a situation of falling rates, tprices and sometimes that turns into near bubbles.

nk high housing prices are ou can build as many houses as you like, but if finance is relatively cheap and available, it will

supply and prices go higher

If the regulator wants lower house prices, butharder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put



50,000.00

100,000.00

150,000.00

200,000.00

250,000.00



particularly if there has been any propertyto find a bank that has gone broke doing prime, diversified

between the 2 countrieslevel of interest rate

. It clearly showsinfluenced by the proximity of the negative interest rate regime in Europe (even though

, so Sweden has a negative cash rate leading to very low interest . More interesting is the chart which shows the interest cost of housing; in the case


(red line in right hand chartrelatively stable over the past 13 years (disregarding the repayment of principal).

en up in higher housing pricedespite the large increase in housing prices. Lots of homeowners

(and assume that the principaIn a situation of falling rates, t

prices and sometimes that turns into near bubbles.housing prices are

ou can build as many houses as you like, but if finance is relatively cheap and available, it will and prices go higher and produce all these nasty things regulators

, but can’t push interest rates higher, they have to make it harder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put



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50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

Annual interest cost Stockholm (2 Bedroom apartment) & Australia (average property).



property price appreciation. We’ve tried for years diversified, residential mortgage lending. We’re yet

between the 2 countries, and the one that has resulted in the interest rates. The 2 charts below show the path

s the large falls in interest ratinfluenced by the proximity of the negative interest rate regime in Europe (even though

, so Sweden has a negative cash rate leading to very low interest which shows the interest cost of housing; in the case


(red line in right hand chart above) relatively stable over the past 13 years (disregarding the repayment of principal).

en up in higher housing prices. In Swedendespite the large increase in housing prices. Lots of homeowners regard

(and assume that the principal will stay stable or increase)In a situation of falling rates, t

prices and sometimes that turns into near bubbles.housing prices are primarily

ou can build as many houses as you like, but if finance is relatively cheap and available, it will and produce all these nasty things regulators

can’t push interest rates higher, they have to make it harder or more expensive to borrow and lend. In the case of the Swedish regulator, they have put

ish limits on debt to income ratios and from next year, they will require higher amortisation s (which will increase the total payment by the lender). Borrowers already have to amortise 1%



Stockholm Interest cost (Krone p.a.)

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price appreciation. We’ve tried for years residential mortgage lending. We’re yet

and the one that has resulted in the . The 2 charts below show the path

the large falls in interest ratinfluenced by the proximity of the negative interest rate regime in Europe (even though


the average house price and for Sweden, the cost o

above) of owning a house has been relatively stable over the past 13 years (disregarding the repayment of principal).

In Sweden, the interest cost hasregard the interest servicing cost

l will stay stable or increase)In a situation of falling rates, there will always be upward

prices and sometimes that turns into near bubbles. And this is where the a financing issue



ish limits on debt to income ratios and from next year, they will require higher amortisation Borrowers already have to amortise 1%



Stockholm Interest cost (Krone p.a.) Australia interests cost ($ p.a.)

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price appreciation. We’ve tried for years residential mortgage lending. We’re yet


the large falls in interest rates. In Sweden, influenced by the proximity of the negative interest rate regime in Europe (even though


the cost of a 2 bedroom

of owning a house has been relatively stable over the past 13 years (disregarding the repayment of principal). So the benefit of

, the interest cost has the interest servicing cost

l will stay stable or increase) and bid here will always be upward

And this is where the a financing issue, not a supply






Australia interests cost ($ p.a.)

price appreciation. We’ve tried for years

residential mortgage lending. We’re yet


es. In Sweden, influenced by the proximity of the negative interest rate regime in Europe (even though


f a 2 bedroom

of owning a house has been So the benefit of

fallen, the interest servicing cost

and bid here will always be upward

And this is where the , not a supply





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What’s happened in Sweden

Other effects.

What do we think will happen?

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presumably even tougher if house prices don’t flatten or fafollowing a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner occupier. We think House prices bit of them all) previous restrictions on borrowingamortisation will put a lid on borrowing

Other effects. Bank share prices have flattish). anticipation of lower interest rates for longer as consumers delevermoves (Swedish Krone

1) We think that housing loan losses for Swedish banks will be minimal. Because banks don’t lend more than 85% and levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs incurred when foreclosisituation for any housiloads of

2) We think the unwinding of the wealth effect will be make a lesser number of people fof rises and start of falls has to have som

3) Property prices sees


presumably even tougher if house prices don’t flatten or fafollowing a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner occupier. We think this will kill a large chunk of demand/supply for investor housing.

House prices have fallen around 8% since midbit of them all) falling 9% in the year to Decemberprevious restrictions on borrowingamortisation will put a lid on borrowing

Bank share prices have Intriguingly, the

anticipation of lower interest rates for longer as consumers delever(Swedish Krone

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t lend more than 85% and levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs incurred when foreclosisituation for any housiloads of other assets and unemployment is still low.We think the unwinding of the wealth effect will be make a lesser number of people fof rises and start of falls has to have somProperty developers prices sees their

Krone/Euro



presumably even tougher if house prices don’t flatten or fafollowing a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner

this will kill a large chunk of demand/supply for investor housing.

have fallen around 8% since midfalling 9% in the year to December

previous restrictions on borrowingamortisation will put a lid on borrowing

Bank share prices have fallen, although not materially more than Australia (wh, the Swedish Krone

anticipation of lower interest rates for longer as consumers delever(Swedish Krone/Euro left hand chart

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t lend more than 85% and levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs incurred when foreclosisituation for any housing loans made before last year. And, in general, househo

other assets and unemployment is still low.We think the unwinding of the wealth effect will be make a lesser number of people fof rises and start of falls has to have som

evelopers look risky. They their profits disappear and existing developer loans look a lot more risky





have fallen around 8% since midfalling 9% in the year to December

previous restrictions on borrowing taking effect and expectations that the March amortisation will put a lid on borrowing and the end of a frothy market.

fallen, although not materially more than Australia (whSwedish Krone has been the most e

anticipation of lower interest rates for longer as consumers deleverleft hand chart and bank share prices right hand chart)

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t lend more than 85% and because house prices now are levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs incurred when foreclosing, you need to see 15%+ falls

ng loans made before last year. And, in general, househoother assets and unemployment is still low.

We think the unwinding of the wealth effect will be make a lesser number of people feel wealthy of rises and start of falls has to have som

look risky. They profits disappear and existing developer loans look a lot more risky

7600

7800

8000

8200

8400

8600

8800

9000





have fallen around 8% since mid-2017, with Stockholm apartment prices (the bubbfalling 9% in the year to December 2017.

taking effect and expectations that the March and the end of a frothy market.

fallen, although not materially more than Australia (whhas been the most e

anticipation of lower interest rates for longer as consumers deleverand bank share prices right hand chart)

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t ause house prices now are

levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs ng, you need to see 15%+ falls


We think the unwinding of the wealth effect will be eel wealthy and this a

of rises and start of falls has to have some effect, particularly if people start deleveraging.look risky. They operate on 10%

profits disappear and existing developer loans look a lot more risky

7600

7800

8000

8200

8400

8600

8800

9000



presumably even tougher if house prices don’t flatten or fall enough.following a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner


2017, with Stockholm apartment prices (the bubb. This is attributed to increased supply, the


fallen, although not materially more than Australia (whhas been the most effected

anticipation of lower interest rates for longer as consumers deleverageand bank share prices right hand chart)

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t ause house prices now are still 10%

levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs ng, you need to see 15%+ falls to generate a negative equity


We think the unwinding of the wealth effect will be intriguingand this affects

e effect, particularly if people start deleveraging.operate on 10% - 20% margins, so


Bank Share Price movements 6/2017 to present

ASX200 Banks (LHS)

_____________________________________________________________________________________________

ll enough. The Australian regulator is following a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner


2017, with Stockholm apartment prices (the bubbThis is attributed to increased supply, the


fallen, although not materially more than Australia (where house prices are ffected, falling c6%,

age. The charts below show the and bank share prices right hand chart)

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t still 10% higher than

levels, losses are only going to emerge on a few 2016 and 2017 loans. Assuming 10% costs to generate a negative equity

ng loans made before last year. And, in general, househo

intriguing. Clearly, fallingffects their spending

e effect, particularly if people start deleveraging.20% margins, so a 20% fall in house



OMX Swedish Bank Index (RHS)

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The Australian regulator is following a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner


2017, with Stockholm apartment prices (the bubbThis is attributed to increased supply, the

taking effect and expectations that the March 2018 additional

ere house prices are c6%, presumably in

charts below show the and bank share prices right hand chart).

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t higher than end 2015


ng loans made before last year. And, in general, households have

. Clearly, falling house prices spending habits. The end

e effect, particularly if people start deleveraging.a 20% fall in house



OMX Swedish Bank Index (RHS)

The Australian regulator is

following a similar path with limits on investor lending growth and prospective changes to capital rules which will make it extremely unprofitable to lend to anyone other than a well financed owner

2017, with Stockholm apartment prices (the bubbliest This is attributed to increased supply, the

2018 additional

ere house prices are presumably in

charts below show the

We think that housing loan losses for Swedish banks will be minimal. Because banks don’t end 2015


lds have

house prices . The end

e effect, particularly if people start deleveraging. a 20% fall in house

1650

1700

1750

1800

1850

1900

1950

2000

2050

2100

for Australia

______________

And lessons for Australia

….but finally this has the potential to be hyped!

DisclaimerThe information (ABN 20 079 036 810) believed to be reliable, but no representation or warranty, express or implied, is made that such informaccurate orassistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to theliability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequentialarising from any use of material contained in this report.

___________________________________________________________________________________________________________

We think Sweden is a good the recent prudential actions by the 10%+ falls in property prices we’ll see much the same influences

1) You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of negative equity, wealthy households and low are at historic lows and will rise

2) It looks to us as though thecommercial property cycle progresses, the banks will discover loan losses and relationships they hadn’t thought of.

3) The margins get hit. There are going to be areas and sub classes that suffer more Brisbane inner city apartments

4) However banks go exyou pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their

5) There shdeleveraging

6) The development sector gets smashed with effects on pAustraland was/isaround all. Howrevenue fall 30%.

The one aspecinvestor market will affect property values. Ifsupply issue is bigger and we get into more buy most of the supply, we will see a smaller fall in prices.

Australia has been a short

Disclaimer The information and opinions contained in this report have been obtained from sources of Elstree Investment Management Limited (ABN 20 079 036 810) believed to be reliable, but no representation or warranty, express or implied, is made that such informaccurate or complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to theliability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequentialarising from any use of material contained in this report.


We think Sweden is a good the recent prudential actions by the 10%+ falls in property prices we’ll see much the same influences

You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of negative equity, wealthy households and low are at historic lows and will riseIt looks to us as though thecommercial property cycle progresses, the banks will discover loan losses and relationships they hadn’t thought of. The margins get hit. There are going to be areas and sub classes that suffer more Brisbane inner city apartments However banks go exyou pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their There should be a dampening effect on the economdeleveragingThe development sector gets smashed with effects on pAustraland was/isaround about the time of the GFCall. However, Australand’s residential revenue fall 30%.

The one aspect we are unsure ofinvestor market will affect property values. Ifsupply issue is bigger and we get into more buy most of the supply, we will see a smaller fall in prices.

Australia has been a short

and opinions contained in this report have been obtained from sources of Elstree Investment Management Limited (ABN 20 079 036 810) believed to be reliable, but no representation or warranty, express or implied, is made that such inform

complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to theliability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequentialarising from any use of material contained in this report.



We think Sweden is a good proxy for 2018 Australia. the recent prudential actions by the 10%+ falls in property prices we’ll see much the same influences

You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of negative equity, wealthy households and low are at historic lows and will riseIt looks to us as though thecommercial property exposures, although everything looks good from a hcycle progresses, the banks will discover loan losses and relationships they hadn’t thought

The margins get hit. There are going to be areas and sub classes that suffer more Brisbane inner city apartments However banks go ex-growth, so the pricing equation becomes more you pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their

ould be a dampening effect on the economdeleveraging. The development sector gets smashed with effects on pAustraland was/is a big, relatively conservative

about the time of the GFCever, Australand’s residential

revenue fall 30%. t we are unsure of

investor market will affect property values. Ifsupply issue is bigger and we get into more buy most of the supply, we will see a smaller fall in prices.

Australia has been a short seller’s


complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to theliability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequentialarising from any use of material contained in this report.



proxy for 2018 Australia. the recent prudential actions by the regulators10%+ falls in property prices we’ll see much the same influences

You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of negative equity, wealthy households and low are at historic lows and will rise. It looks to us as though the banks have been de risking their residential development

exposures, although everything looks good from a hcycle progresses, the banks will discover loan losses and relationships they hadn’t thought

The margins get hit. There are going to be areas and sub classes that suffer more Brisbane inner city apartments

growth, so the pricing equation becomes more you pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their

ould be a dampening effect on the econom

The development sector gets smashed with effects on pa big, relatively conservative

about the time of the GFC, property prices fell between 2% and 5%, so not much at ever, Australand’s residential

t we are unsure of, and where there is a difference to Sweden, is how the Asian investor market will affect property values. Ifsupply issue is bigger and we get into more buy most of the supply, we will see a smaller fall in prices.

eller’s favourite since the GFC


complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to theliability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequential



proxy for 2018 Australia. It looks like there is an oversupply coming and regulators targeting investor loans will bite.

10%+ falls in property prices we’ll see much the same influencesYou’ll barely notice an effect on bank housing losses for the same reasons (low incidence of negative equity, wealthy households and low unemployment), although current loan losses

banks have been de risking their residential development exposures, although everything looks good from a h

cycle progresses, the banks will discover loan losses and relationships they hadn’t thought

The margins get hit. There are going to be areas and sub classes that suffer more

growth, so the pricing equation becomes more you pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their

ould be a dampening effect on the econom

The development sector gets smashed with effects on pa big, relatively conservative

, property prices fell between 2% and 5%, so not much at ever, Australand’s residential sector saw profits fall 75%

, and where there is a difference to Sweden, is how the Asian investor market will affect property values. If the supply issue is bigger and we get into more permanentbuy most of the supply, we will see a smaller fall in prices.

since the GFC





It looks like there is an oversupply coming and ng investor loans will bite.

10%+ falls in property prices we’ll see much the same influences; You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of

unemployment), although current loan losses




growth, so the pricing equation becomes more you pay for entities that have reached peak profitability but will show falling EPS, are at risk of losing some oligopolistic power and have lost their post 1991 engine of growth?

ould be a dampening effect on the economy due to

The development sector gets smashed with effects on profits and lending. For examplea big, relatively conservative, residential developer. In the last cycle

, property prices fell between 2% and 5%, so not much at sector saw profits fall 75%

, and where there is a difference to Sweden, is how the Asian Asian buyers

permanent problems. If Asian investors cobuy most of the supply, we will see a smaller fall in prices.

and we can see it happening again.



_____________________________________________________________________________________________

It looks like there is an oversupply coming and ng investor loans will bite.

You’ll barely notice an effect on bank housing losses for the same reasons (low incidence of unemployment), although current loan losses




growth, so the pricing equation becomes more difficultyou pay for entities that have reached peak profitability but will show falling EPS, are at risk

post 1991 engine of growth?y due to confidence effects and

rofits and lending. For example, residential developer. In the last cycle

, property prices fell between 2% and 5%, so not much at sector saw profits fall 75% (after write

, and where there is a difference to Sweden, is how the Asian Asian buyers disappear, maybe the over

problems. If Asian investors co



complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not relied upon as authoritative and may be subject to change without notice. Except to the extent liability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequential

_____________________________________________________________________________________________ 5

It looks like there is an oversupply coming and ng investor loans will bite. Assuming we get


banks have been de risking their residential development exposures, although everything looks good from a helicopter.



difficult. How much do you pay for entities that have reached peak profitability but will show falling EPS, are at risk

post 1991 engine of growth? confidence effects and

rofits and lending. For example, residential developer. In the last cycle

, property prices fell between 2% and 5%, so not much at (after write downs) and

, and where there is a difference to Sweden, is how the Asian disappear, maybe the over

problems. If Asian investors continue to


and opinions contained in this report have been obtained from sources of Elstree Investment Management Limited (ABN 20 079 036 810) believed to be reliable, but no representation or warranty, express or implied, is made that such information is

complete and it should not be relied upon as such. Information and opinions contained in the report are published for the extent that

liability cannot be excluded, Elstree Investment Management Limited does not accept liability for any direct or consequential loss

It looks like there is an oversupply coming and

Assuming we get


banks have been de risking their residential development and elicopter. As the


The margins get hit. There are going to be areas and sub classes that suffer more (ie)

. How much do you pay for entities that have reached peak profitability but will show falling EPS, are at risk

confidence effects and

rofits and lending. For example, , residential developer. In the last cycle

, property prices fell between 2% and 5%, so not much at downs) and

, and where there is a difference to Sweden, is how the Asian disappear, maybe the over-

ntinue to

sweden : falling house prices in the land of trolls · 2018. 2. 20. · banks do very little high...

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