Download Macro-prudential chartpack Reserve Bank of New Zealand 27-Oct-2015

Aggregate risks
Housing Risks
Other Sectoral Risks
Macro-prudential chartpack
Reserve Bank of New Zealand
Notes and data sources in appendix
27-Oct-2015
Appendix
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Credit and asset prices
Credit−to−GDP gaps and credit growth
40
%
30
%
40
One−sided HP
with static forecasts
with ARIMA forecasts
Credit growth (annual)
%
30
20
20
10
10
0
0
−10
−20
1988
200
Credit−to−GDP ratio by sector
%
200
Household
Business
Agriculture
150
150
100
100
50
50
−10
1992
1996
2000
2004
50
2008
apc
2012
−20
0
1980
1985
Asset price growth by sector
Housing
Farm
Commercial property
1990
1995
2000
2005
2010
0
2015
apc
50
40
40
30
30
20
20
10
10
0
0
−10
−10
−20
−20
−30
−30
−40
−40
1994 1997 2000 2003 2006 2009 2012 2015
1
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Bank leverage and risk-taking
Bank capital ratios
% Total Assets
20
% RWA
20
Tier 1 (RHS)
Tier 1 regulatory min (RHS)
Total (RHS)
Leverage ratio
16
4.0
Bank profitability
%
ROA
Net interest margin
%
30
ROE (RHS)
3.5
16
12
12
25
3.0
20
2.5
2.0
8
8
4
4
0
1998
0
15
1.5
10
1.0
5
0.5
3.5
3.0
%
2001
2004
2007
2010
2013
Fixed term mortgage spreads
Average across banks
Median of best five
%
3.5
0.0
1997
2000
2003
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
2000 2002 2004 2006 2008 2010 2012 2014
0.0
2012
0
2015
Change in lending standards
net %
net %
30
Business
Household
Agriculture 20
↑ Tightening
20
2.5
2009
30
3.0
2.5
2006
10
10
0
0
−10
−20
−10
2010
2011
2012
2013
2014
2015
−20
2
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Funding and liquidity
% GDP
100
External debt & current account
Total
Bank
Current account (RHS)
80
% GDP
% GDP
Credit and deposit growth
% GDP
20
25
15
20
25
10
15
15
5
10
10
0
5
5
−5
0
0
−10
−5
Credit
Deposits as core funding
20
60
40
20
0
1988
% GDP
100
1992
1996
2000
2004
2008
Bank offshore funding
< 90days
≥ 90days
2012
% GDP
100
80
80
60
60
40
40
20
20
0
0
2001 2003 2005 2007 2009 2011 2013 2015
100
2001 2003 2005 2007 2009 2011 2013 2015
Core funding ratio
%
−5
%
100
Core funding ratio
Regulatory min
90
90
80
80
70
70
60
2003
2005
2007
2009
2011
2013
2015
60
3
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Financial market conditions
350
Bank funding spreads
bp
Retail
Domestic wholesale
bp
350
Offshore wholesale
300
Index
70
300
250
250
200
200
150
150
100
100
50
50
0
0
−50
−50
−100
−100
25
S&P 500 volatility
Index
70
1998
%
2001
2004
2007
2010
2013
US corporate bond spreads
60
60
50
50
40
40
30
30
20
20
10
10
2001 2003 2005 2007 2009 2011 2013 2015
%
25
High yield
Investment grade
20
20
15
15
10
10
5
5
9
10−year government bond yields
%
US
UK
NZ
Japan
Germany
Aus
2007
2009
2011
2013
2015
0
9
8
7
7
6
6
5
5
4
4
3
3
2
2
1
0
2005
%
8
0
1999
1
2002
2005
2008
2011
2014
0
4
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Housing market imbalances (1)
35
House price inflation
apc
NZ
AKL
apc
35
Rest of NZ
25
15
5
−5
−15
ratio
10
NZ
AKL
Rest of NZ
9
25
House price−to−income ratios
ratio
10
9
8
8
15
7
7
5
6
6
5
5
4
4
−5
1994
1997
2000
2003
2006
7
2009
%
2012
2015
−15
3
1998
Rental yields
2001
2004
2007
2010
2013
3
%
NZ
AKL
7
6
6
5
5
4
4
3
3
2
2
1994 1997 2000 2003 2006 2009 2012 2015
5
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Housing market imbalances (2)
Housing purchases
number
3000
Investor
FHB
Mover
number
New to Market
Other
3000
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
0
Jul−13Oct−13Jan−14Apr−14Jul−14Oct−14Jan−15Apr−15
apc
14
12
number
450
Auckland investor purchases
10+ properties
450
250
250
150
150
50
Jul−13
House price expectations
Jan−14
Jul−14
Jan−15
50
apc
14
12
10
8
8
6
6
4
4
2
2
2014
number
2
350
Household forecasts
Professional forecasts
Actual data
2013
3−4
350
10
0
5−9
2015
2016
0
6
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Household balance sheet stretch
180
%
160
Household debt−to−income ratios
%
180
Total
Owner occupier
160
140
140
60
Debt servicing ratios
%
55
50
%
60
Aggregate
New buyer − NZ
New buyer − Auckland
55
50
45
45
40
40
120
120
35
35
100
100
30
30
25
25
80
80
20
20
15
15
60
60
40
1979
qpc
1984
1989
1994
1999
2004
2009
Gross and net mortgage lending
6
2014
40
qpc
15
Mortgage credit growth
Commitments (RHS)
Approvals (RHS)
12
5
10
5
1990
$bn
15
12
10
1994
1998
2002
2006
2010
Commitments by borrower type
2014
5
$bn
15
Investor
Other Owner Occupier
FHB
12
4
9
9
9
6
6
6
3
3
3
0
0
3
2
1
0
2003
2005
2007
2009
2011
2013
2015
14Q4
15Q1
15Q2
15Q3
0
7
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Lending standards
LVR
of new commitments (mean above median)
%
%
84
Total
Investor
82
30
84
LVR>90
%
30
80<LVR≤90
25
25
20
20
15
15
10
10
5
82
80
80
78
78
76
76
5
74
74
0
5.0
Mortgage share of high−LVR
%
13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3
%
Mortgage share of NBLIs
%
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
Jul−13
Jan−14
Jul−14
Jan−15
2.5
30
apc
2009
2010
2011
2012
2013
2014
2015
Housing and consumer lending
0
apc
Housing lending
Consumer lending
30
20
20
10
10
0
0
−10
2006
2008
2010
2012
2014
−10
8
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Farm market imbalances
60
Farm price inflation
apc
apc
40
300
number
300
Farm
Dairy
250
40
20
Farm sales
number
60
Farm
Dairy
250
200
200
150
150
100
100
50
50
20
0
0
−20
−20
−40
−40
1998
2001
2004
2007
2010
1997
2000
Farm price−to−income ratio
Index
3.0
2013
0
2003
2006
2009
2012
2015
0
%
900
Farm (index)
Dairy (RHS)
800
2.5
700
2.0
600
500
1.5
400
1.0
1997
2000
2003
2006
2009
2012
300
2015
9
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Farm balance sheet stretch
30
Rural lending growth
apc
apc
Rural debt−to−income ratio
%
%
30
400
25
25
350
350
20
20
300
300
15
15
250
250
200
200
150
100
Farm
Dairy
10
10
5
5
0
0
150
−5
−5
100
−10
1981
−10
50
1980
1986
1991
1996
2001
2006
1985
Dairy farm cashflow forecast
$/kgMS
8
2011
Farm
Effective payout
400
Dairy
1990
6
6
5
5
4
4
2004
2007
2010
2005
2010
50
2015
$/kgMS
7
2001
2000
8
Breakeven
7
3
1995
2013
3
2016
10
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Commercial property imbalances
50
apc
Commercial property price inflation
Total
Retail
Office
apc
50
Industrial
40
40
30
30
20
20
Price−to−rent by sector
ratio
15
14
13
10
10
0
0
ratio
15
Total
Retail
Office
Industrial
14
13
12
12
11
11
−10
−10
10
10
−20
−20
9
9
−30
1995
−30
8
1994
30
1998
2001
2004
2007
2010
2013
Vacancy rate by sector
%
%
25
30
Retail
Office
Industrial 25
20
20
15
15
10
10
5
5
0
1994
1997
2000
2003
2006
2009
2012
0
2015
16
1997
2000
2003
2006
2009
2012
Forecast supply
%
Retail
Office
8
2015
%
16
Industrial
12
12
8
8
4
4
0
0
−4
1995
1999
2003
2007
2011
2015
2019
−4
11
Aggregate risks
Housing Risks
Other Sectoral Risks
Appendix
Business balance sheet stretch
25
apc
Business lending growth
apc
20
25
Property
Non−property 20
15
15
10
10
5
5
0
0
−5
−5
−10
−10
−15
2006
2008
2010
2012
2014
−15
160
140
Debt−to−income ratio
%
%
18
Property
Non−property (RHS)
17
16
120
15
100
14
13
80
12
60
40
11
1996
1999
2002
2005
2008
2011
2014
10
12
Indicators for Aggregate Financial Risks
Indicator
Credit cycle
Intuition
1
Credit-to-GDP
gap and growth
Rapid credit booms are associated with
rising systemic risk. This is particularly
true if credit is persistently outstripping
GDP (as indicated by an elevated creditto-GDP gap).
2
Credit-to-GDP
level
3
Asset prices by
sector
Evidence
Credit-to-GDP gap and
credit growth are two of the
best predictors for financial
crises in the early warning
literature.
Methodology
Source
Credit growth is an annual percent
change. Credit-to-GDP gap is
computed in quasi real-time with a
one-sided statistical filter (HP) and
one-sided HP filter augumented by
rolling-window ARIMA forecasts.
RBNZ Standard
Statistical Return
(SSR), Statistics
New Zealand.
Rapid credit growth could be more
concerning if the credit-to-GDP level is
already elevated. Further work is required
to understand the reasons for elevated
credit-to-GDP, and whether it can be
attributed to trend factors such as lower
neutral interest rates.
Ratio of household, business and
agricultural lending to total GDP.
RBNZ SSR,
Statistics New
Zealand.
Synchronised asset prices across an
economy could pose risks to the financial
system, partciularly if this occurs
alongside rapid credit growth.
Early warning literature has Annual percent change in house,
found that asset prices have commercial and farm prices.
predictive power in addition
to credit measures.
REINZ, JLL.
4
Indicator
Bank capital and
leverage ratios
Intuition
A reduction in the quality and quantity of
capital over the cycle would reduce lossabsorbing capacity and indicate increased
risk appetite. Falling leverage
(unweighted capital) ratios during credit
booms could indicate pro-cyclical
approaches to risk weighting.
5
Bank
profitability
Sustained periods of high or low profits
require further investigation. Weak
profitability could indicate increased
competition with risks to lending
standards, while high profits could be
achieved by taking on riskier assets.
Weak profitability during periods of stress
reduces loss absorbing capacity.
6
Mortgage credit
spreads
Signs of reduced lending margins could
reinforce credit/asset price cycles and
weaken financial system resilience. This
indicator helps identify supply driven
increases in credit.
7
Lending
standards
Easier lending standards (through
reduced margins or non-price conditions)
could weaken the resilience of bank
portfolios.
Evidence
Global bank failures during
the GFC were strongly
correlated with leverage
ratio.
Methodology
Return on assets, return on equity
and net interest margin.
Macro-financial time series
models suggest that credit
spreads tend to amplify
housing market cycles.
Source
Total capital/rwa, Tier 1 capital/rwa, Registered Bank
Leverage ratio (Tier 1
Disclosure
capital/assets).
Statements .
Registered Bank
Disclosure
Statements,
RBNZ Income
Statement .
Spreads on fixed mortgage rates
RBNZ SSR,
are used as a proxy for overall credit interest.co.nz
spreads, and are defined using the
relevant benchmark swap rate. They
are computed for the 7 largest
mortgage lenders and across all
fixed terms. Two methods are used
to aggregate data (i) simple average
of spreads (ii) median of the best 5
spreads. Specials for low-LVR
customers are used where
available.
Banks are asked whether they have RBNZ Credit
eased or tightened non-price and
Conditions
price lending standards. A net
Survey.
percentage reporting tighter
standards is computed (weighted by
market share of each bank).
Indicator
Funding and liquidity
Intuition
Evidence
Methodology
Source
8
Net foreign
assets and
current account
deficit.
A high stock of external liabilities creates Current account deficits
an exposure to offshore market volatility. have some predictive power
This vulnerability is exacerbated if the
in early warning literature.
current account deficit is also elevated, or
if debt is concentrated in sectors with high
leverage.
Net international investment
position, bank external debt, and
current account deficit. All are
scaled relative to annual GDP.
9
Credit and
deposit growth
Credit growing well in excess of deposits
suggests banks are reliant on wholesale
markets to fund lending. So an increase
in wholesale funding costs/shut-down in
markets could result in a significant
tightening in credit supply.
Deposit growth has
outstripped lending growth
in recent years, and
appeared to explain banks
being unaffected by market
turbulence in early 2012.
Credit and deposit growth, both
RBNZ Liquidity
scaled relative to annual GDP. Uses Survey, SSR.
non-market funding from Liquidity
Survey after 2010 and retail funding
from SSR to backdate. Haircuts are
applied to non-market funding in line
with the liquidity policy.
Availability of offshore funding can quickly
deterioate during periods of market
stress. Vulnerabilities are increased if
most of the borrowing needs to be rolled
over at relatively short maturities.
Compression of CFR relative to regulatory
minima could indicate increased risktaking.
Many banks reliant on shortterm markets came under
stress during the GFC.
Some evidence in early
warning literature that
reliance on short-term
wholesale funding has
predictive power for
financial crises.
Bank offshore funding, and
StatsNZ IIP,
component that is due in less than RBNZ Liquidity
90 days. Scaled as a % GDP. Core Survey.
funding ratio defined as in liquidity
policy.
10 & 11 Offshore
funding rollover
and core
funding ratio
(CFR).
StatsNZ IIP, BOP
12
Indicator
Bank funding
spreads
Intuition
Evidence
Methodology
Source
Wholesale spreads proxy markets
perception of risk of NZ banks. Retail
deposit spreads will give an indication of
whether trends in offshore markets are
passing through to average funding costs.
Long-term wholesale (domestic and RBNZ Liquidity
offshore) and retail funding spreads. Survey, SSR.
Wholesale spreads are a simple
average of the landed cost of new
issues by big-4 banks from the
Liquidity Survey, at terms of
between 4 and 7 years. The spread
between the average 6-month
deposit rate and the 180 day bank
bill is the proxy for retail spreads.
13
Global
corporate bond
spreads and
S&P volatility
Very compressed spreads or volatility in
global markets could suggest risk is
underpriced and an increased probability
of a market correction.
Currently use high-yield and
investment grade bond spreads
from the US, and S&P volatility.
Could be extended in future.
14
Long-term
interest rates
Low global long-term interest rates can
encourage a 'search for yield'. NZ longterm interest rates will typically move in
line with global, potentially resulting in
lower long-term bank lending rates.
10-year government bond yields.
Haver, FSIS.
Indicators for Housing Risks
Indicator
Housing market imbalances
Intuition
Evidence
Rapid house price
growth is a useful leading
indicator of crises,
especiallly when
combined with rapid
lending.
1
House price growth by
region
Rapid house price growth can increase
the risk of a correction further down the
road. Increases in the value of
collateral also result in feedback effects
with housing borrowing. Regional data
can detect concentrations of risk.
2
House price to income ratio
by region
Measures stretch in house prices
relative to underlying household
income. Higher house price-to-income
ratios will typically imply new buyers
need to take on more debt to enter the
market. House price inflation is of most
concern where prices are stretched.
3
Rental yield by region
Metric of how stretched house prices
are relative to underlying rental income.
Very low and falling rental yields could
indicate speculative behaviour (ie
investors are buying properties mainly
due to high expected capital gain).
4
House sales by buyer type
When combined with other data,
purchases by different buyer types can
shed light on market risks. Investor
share could be of concern if DTIs are
high and rising and rental yields are
falling. Buyer shares can also give
insights into the distributional impact of
LVR/DTI limits.
5
House price expectations
Strong house price expectations are an
indicator of speculative/bubble market.
Methodology
Annual three-month moving
REINZ.
average house price inflation for
NZ, Auckland, and rest of NZ.
Index for rest of NZ is constructed
using share of sales for different
regions.
Regions correspond to above.
Average house values are
estimated by rescaling REINZ
indices to match QV average
values in each region. Regional
income data for rest of NZ is
aggregated using share of
households.
Ratio of regional house price to
rent, for NZ and Auckland.
Assumes investor purchase
houses similar in value to average
house value estimates discussed
above.
International evidence
that investor lending is
more risky, and often
amplifies housing cycles.
Source
REINZ, New
Zealand
Income
Survey.
REINZ,
Department of
building and
housing.
Create buyer shares from the
CoreLogic,
CoreLogic unit records using
REINZ.
Stata. Aggregate to actual sales
using REINZ data, adjusted for
lags. More detailed data is charted
for Multiple Property Owners in
Auckland. All series are 3-month
moving averages.
Chart shows expectations of
households and professional
forecasts. Data is lagged to show
expected annual percent change
at the relevant date.
RBNZ.
Indicator
Borrower balance sheets
6 Household debt-to-income
ratio (DTI)
Intuition
Evidence
Methodology
Source
High aggregate DTI makes the
Aggregate DTIs have
household sector more susceptible to a tended to increase prior
deterioation in servicing ability or rise in to international crises.
interest rates. Downturns can be
amplified as high DTI households
attempt to restore balance sheets.
Total household debt (inclusive of
rental property debt) as a ratio to
annual sector income. Owneroccupied debt-to-income ratio is
shown for comparison.
RBNZ
Household
Asset and
Liabilities
Survey.
For total sector, total principal and
interest payments are estimated
using debt stock, assumed
average time to maturity, and
disposable income. New buyer
DSRs are estimated for a typical
buyer in NZ and Auckland,
assumed to have average income
(for their region), and purchase an
average house with a 20 percent
downpayment.
Net
credit growth is change in
mortgage debt over quarterly
timeframe. Gross lending is new
commitments over the quarter
scaled by mortgage debt at start
of period. Approvals are included
for historical perspective.
RBNZ SSR
Survey, HHAL
Survey,
Statistics NZ.
3-monthly commitments to firsthome buyers, other owneroccupiers and investors.
RBNZ New
Residential
Mortgage
Commitment
Survey.
7
Debt servicing ratios
(DSRs)
Elevated DSRs could indicate
increased financial pressure. For new
borrowers, high DSRs required to enter
the housing market could indicate new
cohorts of borrowers becoming
increasingly vulnerable, and/or the
housing market could be hitting
affordability constraints.
Early warning literature
suggests DSRs have
strong predictive power
at short horizons (< 1
year). DSR increased
prior to GFC and late
80's in NZ.
8
Gross and net mortgage
lending
Rapid mortgage credit growth adds to
indebtedness and is often a sign of
rising systemic risks in the housing
market. Rapid gross lending could still
pose risks alongside weak net credit
growth. Gross lending is more closely
related to housing market and gives a
better indication of changing
indebtedness of new customers.
Mortgage lending is
found to have strong
predictive power for
international crises, and
account for most of the
predictive power of the
credit gap.
9
Lending by buyer type
Distribution of lending by buyer type
can shed light on credit risks. Eg if
lending is disproportionately driven by
more indebted or higher risk types.
RBNZ SSR,
New
Residential
Mortgage
Commitment
Survey,
Approvals
survey.
Indicator
Lending standards
10 Distribution of lending by
LVR
Intuition
Evidence
Methodology
Source
High-LVR borrowers are more exposed
to a house price decline. Need to
significantly cut back consumption to
restore wealth and are more likely to
default if servicing capacity declines.
International evidence
suggests that losses
associated with high-LVR
loans are larger, and
downturns are worsened
by a prevalence of highLVR lending.
Mean LVR above estimated
median. Total lending and security
above median LVR is estimated by
assuming average LVR within
each bucket is the mid-point
between bottom and top of the
bucket.
RBNZ LVR
New
Commitments
Survey
11 Stock of high-LVR
mortgage lending
See above for risks around high-LVR
lending. This indicator captures the
stock exposure from previous lending.
Also used to assess effectiveness of
LVR policy.
See evidence for 10
above.
Total high-LVR lending (includes
off-balance sheet) for big-5,
divided by total mortgages.
Disclosure
statements.
12 Consumer vs housing
lending
Significant increase in consumer
lending while restrictions on mortgage
lending are in place could indicate
regulatory leakage.
Consumer lending growth from
SSR, including min and max
growth rates of big 5.
RBNZ SSR.
13 Non-bank mortgage
lending and consumer
lending
A rising share of lending by non-banks,
who do not specialise in mortgage
lending, could indicate higher risks or
disintermediation due to bank
regulation.
Number of mortgages registered CoreLogic.
by non-banks, as a share of total.
Indicators for Other Sectoral Risks
Indicator
Rural sector
Intuition
Evidence
Methodology
Source
1
Rural land price inflation by
sector
Rapid farm price growth can increase the
risk of a correction further down the road.
Increases in the value of collateral also
result in feedback effects with borrowing.
Sectoral data can detect concentrations of
risk.
Booming farm prices
were associated with
rapid lending prior to
the GFC, helping to
explain sharp fall in
subsequent years.
Dairy and rural land prices,
annual percent change of 3
month moving average.
REINZ.
2
Rural price-to-income ratios
by sector
High and rising farm price-to-income
ratios indicate an increased risk of a
correction in farm prices in the future.
High ratios indicate that farm prices are
detatched from incomes, and purchases
are likely being made on the basis of
capital gain rather than income yields.
Rise in price-to-income
prior to GFC resulted
in a significant farm
price correction in the
following years.
Farm price index is used to proxy REINZ, Stats NZ,
total value of farm land, while
DairyNZ.
value of dairy land is estimated
using REINZ index, total hectares
and average land value from
DairyNZ. Agricultural GDP used
to proxy farm income, and dairy
income is constructed using
effective payout*milk production.
Due to volatility in farm incomes,
the trend in both income
measures is estimated using a
HP filter with judgement imposed
to ensure the trend payout is
$6.25 in 2015-16.
3
Rural land sales by sector
Farm market can become very illiquid,
Liquidity in the farm
3-month moving average of dairy REINZ.
particularly during periods of stress.
market dried up in the and total farm land sales.
Including the number of sales helps the
wake of the GFC.
reader to interpret the farm price index,
and gives a broader indication of stress in
the market.
4
Indicator
Credit growth by
agricultural sector
Intuition
Evidence
Methodology
Source
Rapid credit growth could indicate
deterioating lending standards and
increased probability of a crash in coming
years, particularly if it occurs alongside
increasingly stretched farm prices. Credit
growth can also be a sign of stress during
periods of weak cashflow.
Lending growth in pre- Annual percent change in dairy
GFC years was
and total agricultural debt.
correlated with
subsequent stress.
RBNZ SSR,
Annual Agri
Survey.
RBNZ SSR,
Annual Agri
Survey, StatsNZ,
DairyNZ.
5
Debt-to-income ratio by
sector
High DTI ratios makes the sector more
susceptible to a deterioation in farm
income or rise in interest rates. This is
likely to also impair the functioning of the
farm market during periods of stress.
Work with unit records Total debt in each sector divided
shows farms with high by income measures discussed
DTIs have much larger above.
breakeven payouts.
6
Dairy farm cash flow
Cash flow pressures in the indebted dairy
sector could indicate release of SCR is
appropriate, and suggests heightened risk
of downward adjustment in farm prices.
See above - work with
unit records shows
periods of negative
cash flow will have
significant implications
for high debt farms.
Cash flow data are averages
DairyNZ Economic
from survey data. Breakeven
Survey.
cash flow is working expenses
plus drawings plus interest
servicing minus livestock
revenue. Milk revenue is effective
milk revenue.
Rapid credit growth could indicate
deterioating lending standards and
increased probability of a crash in coming
years. Rapid growth in commercial
property and/or property development
lending is particularly concerning given the
volatility in prices over history.
Rapid increases in
commercial property
lending preceded
periods of stress in late
80's and GFC.
Evidence suggests
commercial property
losses play a
significant role in most
financial crises.
Commercial property lending is
proxied using lending to the
property and business services
ANZSIC code. Non-property
lending is proxied using lending
to manufacturing, utilities,
construction, wholesale trade,
retail trade, transport and
communications.
Other business sector
7
Credit growth by sector
SSR ANZSIC Data
8
Indicator
Debt-to-income ratios by
sector
Intuition
Evidence
High DTI makes the sector more
susceptible to a deterioation in profitability
or rise in interest rates. Increase in
stressed sales could amplify a commercial
property market downturn.
Source
Methodology
Debt as above. Nominal GDP
SSR ANZSIC
(total output) for the relevant
Data, Statistics NZ.
ANZSIC code is used to proxy
income. Real GDP and
Producers Price Indices are used
to bring these figures up to date.
9
Commercial property price
inflation by sector
Rapid price inflation increases the risk of a
future correction. Commercial property
prices tend to have particularly large
cycles, due to high average values, large
transaction costs, and long build times.
Rapid increases in
Annual percent change in capital JLL
commercial property
return index for office, retail and
prices preceded
industrial.
periods of stress in the
late 80's and GFC.
10
Commercial property priceto-rent
Rising price-to-rent ratios indicate that
investors are putting an increasing weight
on expected capital gain in purchasing
decisions, as opposed to income yield.
Price-to-rent ratios in three
JLL
sectors above, defined using the
inverse of yields on market
transactions.
11
Commercial property
vacancy rates
Low vacancy rates suggest upward
pressure on rents and prices. Vacancy
rates also tend to increase sharply during
periods of financial stress.
Vacancy rate by sector. Possibly JLL
include prime/secondary split for
office and malls/non-malls split
for retail.
12
Commercial property
supply pipeline
Commercial property projects take a long
time to execute. By the time construction
finishes, rapid increases in supply often
exacerbate periods of falling prices.
Both the GFC and late
80's period of stress
were exacerbated by
increased supply
coming onstream as
prices were falling.
Supply pipeline for each sector,
defined as a percent of total
square metres of space in each
sector.
JLL