It’s been a month since the big four banks announced they’d bring in restrictions on property investment loans. This was widely anticipated as being a handbrake move on a property market that was gathering dizzying speed. It was surmised that these restrictions were in response to moves by APRA to slow down housing debt. That it was aimed to put the clamps on cowboy investors and high risk lending. Most of the restrictions were such things as reducing discount incentives or making the loan criteria more difficult to meet. At the time there were predictions of this taking the heat out of the market.
We’re now a month on, so what’s been the outcome? Has the market slowed? Michael Vonwiller of Meridian Consulting feels the thirst for product hasn’t abated:
“Certainly we’re seeing buoyancy and huge demand for property. Investors are still very active as major players in the market. Clearance rates are high in Sydney, Melbourne and Brisbane. Nationally you’d have to say the trends are very good for a winter market.”
SQM Research’s Louis Christopher goes further and claims that APRA’s strategies to limit investor lending is “ineffective” and “not working”.
There’s many reasons for this. Part of the problem is that APRA’s crackdown only covers authorized lenders like banks and credit unions. It still doesn’t prevent many companies to lend mortgages to unqualified investors or those flashing high-risk warning signs. The dodgy, fly-by-nighters, the mobile money-lenders will always be around. As Vonwiller puts it: “if someone really wants a property investment loan they’ll always find a way to get one.”
Another reason is the continuation of low interest rates. This keeps investors keenly interested. Those who may not qualify under the new restrictions but will find another way in, perhaps through an unauthorized money lender. Also property investment remains highly attractive to mum and dad investors who may never have entered the market before. These kinds of investors easily qualify for the new banks’ restrictions on investment lending. They’re encouraged by the seemingly easy killing fields that fertile demand and low interest rates offer.
The tightening up of discounted rates has had some effect but the continued appetite for foreign investment in Australia has offset this. We’ve seen a number of articles about Chinese investment pushing up house prices in Sydney. And several major reports from last year showed a significant number of new dwelling sales in Queensland going to foreign buyers. In fact one bank’s survey has shown that foreign buying is generally the most vigorous in the new homes market, accounting for 15.6% of the demand nationwide. This in turn has fuelled the construction and building industry to some record highs over the last year. Foreign investment doesn’t account for everything but it sure does keep the heated embers of the property market smouldering.
There has to be caution in reading any kind of national figures. Each state and region has it’s own eccentric quirks. For instance West Australia has remained somewhat sluggish since the collapse of the mining boom. Yet Sydney, Victoria and Queensland remain on the rise. However there’s still a clear discrepancy between the metro and regional figures with a 7.9 % increase between capital cities compared to a 1.5% increase in areas outside of the big cities. Overall though there hasn’t been a notable cooling in the market. Indeed nationally we’ve seen a subsided yet still solid increase for housing prices, with a 2.6% growth in investor loans in April.
The API’s latest survey of analysts and experts found that there was a general belief that the housing bubble would last for another good 12 months across Australia.
Perhaps what’s a good takeaway is that the new property investment restrictions have filtered out the wavering investors from the eager and qualified ones. Yet the national property market remains a febrile mix of undersupply and low interest rates and a rapacious demand from foreign investors. Property investment remains a simmering cauldron with Sydney carrying the brunt of demand.
SQM’s Christopher suggests that the way forward is a loan to value ratio system, similar to New Zealand, where areas like Sydney have increased loan scrutiny and tightening of restrictions.
Vonwiller says: “The likelihood is that the APRA will rethink its strategy and come in with a tougher set of restrictions for phase 2.”
However, it will be interesting to see if vibrant and crackling markets like Sydney and Melbourne will be affected in the short term. It’s also hard to imagine demand for investor housing slowing down in the near future.