Australia's status as a hub of property investment activity may be under threat, especially in light of plans to limit the number of buy-to-let loans. Late last year, the Australian Prudential Regulation Authority (APRA) revealed that it would be taking steps to encourage sound residential mortgage lending practices, which in some cases will impact the investment market.
APRA supervisors were asked to consider certain risk indicators in the investment market, namely, any portfolio growth that is above the 10 per cent threshold. The group was keen to point out that while many lenders do adhere to the guidelines, there are some that are causing problems for the wider industry.
"This is a measured and targeted response to emerging pressures in the housing market," acknowledged APRA Chairman Wayne Byres.
"These steps represent a dialling up in the intensity of APRA's supervision, proportionate to the current level of risk and targeted at specific higher risk lending practices in individual authorised deposit-taking institutions."
A blow to the building industry?
With the official cash rate at an all-time low, it would perhaps be safe to assume that the construction sector is faring well in the current conditions. However, a number of major property groups believe this isn't the case – and that APRA's crackdown could partly be to blame.
The Property Council of Australia recently commented on dwelling approvals data from the Australian Bureau of Statistics, which pointed to a slowdown in activity. Executive Director Nick Proud emphasised that the current building cycle may have peaked, potentially because of the limits being placed on investor activity.
"With investment loans likely to be lower, the critical issue is to ensure as many approvals are converted to actual builds as possible to boost supply, especially in Sydney where pricing pressures have been predominantly due to undersupply," commented Mr Proud.
The Housing Industry Association agreed and, in response to the decision to keep the cash rate at 2 per cent, noted that efforts should be made to support the industry. HIA Chief Economist Harley Dale explained that the market is just right to facilitate growth at the moment, providing investors are allowed to play a part.
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