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Read the most recent update from 4/10 to 10/10

The ASX 200 fell by -0.17% this week to 7320.1 index points, but nevertheless in excess of last week’s index by 134.6 points. In the AXS sectors, 6 out of 11 sectors posted minimal losses with Health Care and Discretionary falling by 1.70% and 1.63% respectively. On the bright side, the remaining 5 sectors registered rather significant gains with energy leading the way at 3.28% due to an increase in oil price , followed by utilities at 2.87% . 

RBA warns of housing price rises accompanied by growth in housing credit growth

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The Reserve Bank’s latest report on the health of the financial system focuses on the housing market as an annual growth of 10% in housing credit might be associated with a lift in credit to income ratio. This implies that borrowers, being “over-exuberant”, might decide to borrow in excess of their income by taking on greater risk with expectations of further house price rises and banks potentially easing lending standards. According to the latest Bureau of Statistics data, wage growth at 1.7% is far offset by housing credit growth forecast to top 10% on a six-month annualised basis next year.

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To this end, the RBA noted that “an increase in loans with high debt-to-income ratios together with sustained growth in housing credit would add to the risks of high household debt”. As a result, an environment fraught with rapidly rising property prices and extrapolative expectations might give rise to unsustainable debt trends as new borrowers are continually “stretching their financial capacity and a greater chance of disorderly future price corrections”. Statistically, there has been an average increase in house prices by 20.3% across the nation with examples such as Hobart at 26.8%, Canberra at 24.4% and Sydney at 23.6%. 

In response to the systemic risk, the Australian Prudential Regulation Authority has increased the household loan serviceability buffer from 2.5 to 3% in order to reduce the borrowing capacity of new borrowers. Its chairman said that ‘he was prepared to impose additional curbs on banks if elevated levels of lending to heavily indebted borrowers continues.’ 

On a more positive outlook, the RBA noted that “the Australian financial system is highly resilient- with rapid progress in vaccinations, it is expected that output will rebound as the economy gradually reopens, reducing the risk to the financial system.” Moreover, the household savings ratio is currently above 10% higher in the first half of 2021 than most of the past decade. Most borrowers’ income had recovered to exceed pre-pandemic levels, except for tourism and hospitality. Increases in housing prices have also improved balance sheet figures of property owners against risks of insolvency.

However, the Federal Reserve has announced its intentions to reduce its asset purchases by $15 billion per month, starting from November. Following this is an anticipation of an increase in the cash rate, but the Fed has assured that this will not occur until the unemployment rate begins to fall. As a result, bond yields have begun to rise. If this continues, then asset prices may also fall, as the cost of corporate debt (which trades at a premium to the US treasury bond yields) increases and therefore financing becomes more expensive for companies. The uncertainty surrounding the Fed’s actions, and the effect this has on profit forecasting (along with several other factors), has increased volatility and has led to a poor month of performance for US stocks. 

Still, DWS group (an asset management company), remains confident in the asset price valuations as long as “yield’s climb… (but) without a surge in yields”, and does not expect a correction - a fall of over 10% - to take place. There is still a lot to happen in US markets over the final quarter of the year, and it is likely that any effect will be reflected in Australian markets as well.

Clever financing solutions at a click of a Butn

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Butn Limited is a founder led Australian B2B funder innovating the way SMEs fund and grow their businesses. Butn focuses on transactional funding helping businesses through their working capital constraints with the aim to free up cash flow problems. Butn provides funding to businesses on a transaction-by-transaction basis for a fixed fee, and adds a clickable button to software platforms (such as MYOB) that can trigger instant financing.

Since inception in 2018, the company has conducted $700 million worth of transactions, and has kept bad debts to about 0.03 per cent. The recently IPO'd company, Butn has experienced a 30 percent slump in its share price from a A$0.50 IPO listing price on 6th July 2021 to A$0.35 at market closing on 8th October 2021 just last week. However, at least some things are going well for this young Fintech company with the recent signing of two real estate deals, launching the instant financing company into the commercial property industry.

In an extension of its partnership-based business-to-business growth strategy, Butn has integrated with Agentbox, a customer relationship management software solution, to provide real estate agents with early access to commissions in more than 2000 offices nationwide. The Agentbox partnership aims to free up cash flow problems for real estate agents needing to pay for office costs, while also bringing forward commission payments for agents selling one or two properties a month and waiting 42 to 60 days for settlement payments.

Butn, which has been growing 30 to 40 per cent year-on-year, has also partnered with Ready Media Group to install its ButnPay option onto the platform and in front of about 60,000 monthly website users and more than 2000 agency clients. Ready Media Group and Butn have developed a buy now, pay later option for commercial property vendors who require funding between settlement dates.

Butn also has a relationship with MYOB whereby it provides instant financing to small business customers managing cash flow issues. “We’re really sticking with our B2B strategy, and real estate gives us access not only to the agents but also the vendors,” Butn co-founder and co-CEO Rael Ross said. “We don’t want someone jumping on Google, or calling their broker, or calling their bank, if they can access B2B funding products with the click of a button.”

Mr Ross said the recent integrations had shown the underlying technology was becoming more adaptable and the application programming interfaces stronger.