Investor crackdown a ‘failure’
Recent attempts by regulators and the banks to put the brakes on investor activity have failed, with harsher measures on the horizon as a result, according to a market researcher.
In recent weeks several banks have taken steps to reduce the potential borrowing capacity of investors, including changing loan-to-value ratios (LVRs) and reducing discounts. The moves have largely been implemented in response to concerns voiced by the Australian Prudential Regulation Authority (APRA) that housing-related risks have grown and lenders are engaging in “disconcerting” lending practices to investors.
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Speaking about the efforts of the banks and regulators to rein in activity, SQM Research managing director Louis Christopher said he’s “getting an increasing sense APRA’s recent action isn’t working”.
“Since the announcement by the major banks of new restrictions four weeks ago, clearance rates have stayed above 80 per cent in Sydney and 75 per cent in Melbourne,” Mr Christopher said. “This is hardly slowdown territory. On top of this I am having a strong sense that listings have fallen again from the levels in May.”
Mr Christopher said that once APRA “are convinced that their existing efforts to slow the market have failed”, they will “turn the screws again” – probably before Christmas.
He said the regulator had several options on the table to further restrict investors.
“They may well ask the banks to place tougher restrictions to get overall investment lending credit growth back under 10 per cent per annum. In other words, leave it to the banks on how they wish to meet the credit limit.”
The risk with this approach, he said, was that it would “unnecessarily slow down investor appetite across the country” – which would, in turn, hamper housing construction and remove the “feel-good factor that is associated with rising house prices to keep the other parts of the economy from stalling”.
Instead, Mr Christopher predicts that APRA will follow the lead of the Reserve Bank of New Zealand (RBNZ) and focus on putting LVR limits on Sydney real estate investors.
“The RBNZ are now targeting specific areas where there is evidence of a bubble – that being Auckland, where house prices have risen substantially.
“Setting such a course for the Sydney market, and perhaps later on the Melbourne market, would be optimal for the RBA. It would enable it to keep rates low ... and would tactically target problem ‘bubble’ areas.”
Mr Christopher’s assessment that APRA’s moves thus far have been “ineffective” in slowing the housing market was echoed in Smart Property Investment’s most recent Investor Insight Survey – which revealed investors across the country believe there are far more pressing factors driving house price growth than investors and relaxed lending standards.
According to survey respondents, housing undersupply has the most significant impact on pushing up property prices, followed by population growth. The third most significant factor, according to investors, was low interest rates, followed by foreign buyers.
The three most insignificant factors, according to the survey were investors, relaxed lending standards and negative gearing. A total of 57 per cent of respondents believed relaxed lending standards had “little impact” in pushing up property prices, and a further 12.6 per cent said they had no impact at all. Just under 30 per cent said lending standards had a “big impact” on property prices.
Comparatively, more than 78 per cent of respondents said “housing undersupply” had a “big impact” on property price growth”, with just 19.6 per cent saying it had “little impact” and less than 2 per cent “no impact”.
