Recent APRA tightening may produce opportunities for some: Michael Davoren

Recent APRA tightening may produce opportunities for some: Michael Davoren
Recent APRA tightening may produce opportunities for some: Michael Davoren

GUEST OBSERVER

In all the talk about the effect that APRA’s restrictions may have on the property market, there are few things that strike me.

Firstly 

There is a very real danger in applying a national remedy to a problem that is not national.

Everything is not same-same across Australia – there is no ‘boom’ evident in most places outside Sydney and Melbourne – and even within those markets, it’s not in all suburbs

There should be more engagement with financial and real estate industries before decisions are reached. 

Look what happened in New Zealand when the Reserve Bank there introduced lending restrictions on people buying houses in Auckland. It didn’t really impact where they want it to but it did cruel the first home buyer market.

Don’t strangle a market when and where you don’t need to. Markets in Brisbane, Adelaide, Perth and Canberra, let alone Australia’s provincial and regional centres, are not in the same ball park as those Sydney and Melbourne markets that many commentators focus on. 

The vast majority of markets don’t need to slow down. Some are already deflated.

In CoreLogic’s September 2015 Housing Market & Economic Update, I see:

-        Sydney where home values are consistently trending higher, median house price is $900,000 and median apartment price is $670,000.

-        Melbourne having the strongest quarter of any capital city, median house price is $620,000 and median apartment price is $475,000.

-        Brisbane with moderate capital growth, median house price is $482,400 and median apartment price is $382,200.

-        Adelaide with a slowdown in annual rate of value growth, median house price is $430,000 and median apartment price is $350,000.

-        Perth with declining home values, median house price is $520,000 and median apartment price is $415,500.

-        Hobart with values lower than five years ago though on the rise, median house price is $900,000 and median apartment price is $670,000.

-        Darwin with a sharp decline in home values, median house price is $580,000 and median apartment price is $450,000.

-        And Canberra with falling values in a year-on-year, median house price is $587,800 and median apartment price is $415,000.

Look at the market differences – the different stages they are in their property cycles - and these are just the capital cities!

APRA’s mid-August data demonstrated strong and accelerating growth in investor and interest-only lending but its latest banking statistics released at the end of the month showed some suggestion that investment lending growth was cooling. 

It’s too early to say whether this is the recent clampdown beginning to finally take effect, nor does it do anything to convince me that that APRA’s directives, with their national implications,

Property market activity – anywhere - is underpinned by supply and demand. This is effectively what moves markets through their property cycles.

Undoubtedly there will have to be a shift, with some markets moving past their peak. Others will be on the upswing. That’s the way things work. The danger is in taking a statement like ‘Property prices to fall’ and thinking it applies to every market, every micro-market, in Australia.

Secondly

It is not unusual to see stock market corrections. 

What has occurred last month was a well-timed caution that things are not set in concrete

Will there be a shift in where the investor puts their money? To consider are investing in a nervous stock market, restructuring superannuation investments, putting their cash in banks or buying property.

While the stock market investor will be looking warily around to see what and when the correction is going to be and the cash investor today is not having a good time of it with very low interest rates, the real estate investor needs to keep in mind that in order to gain you need to be able to sit.

If you can invest in property, be in it for the long haul.

Property market growth is something we are likely to see in most parts of Australia.

The volatility in the stock market right now is making property a much safer investment strategy.

There will be no major collapse in the next few years, especially while the interest rates are low, employment prospects are good, there is a backlog in construction of new property and our dollar is attracting foreign buyers

Thirdly

Banks don’t make money by keeping money in the bank, they make money by loaning money to investors. 

Banks are in the business of making a profit. When something threatens the profit margin, one of the things they can do is to pass on their losses to consumers.

With the APRA measures, the big lenders’ exposure – their need to hold capital – has almost doubled. Because they have to hold more, they can’t make as much money; they need more money so they can continue to lend. What are the options? They can increase the cost to the investor in order to meet their targets; they can raise capital from their investors by issuing additional shares, as the CBA is doing; or they can pull out of the investor market altogether, like we saw AMP do.

The heat in predominantly inner Sydney and Melbourne markets led to APRA’s involvement in limiting investor lending, with the flow-on impacts on banks and the strategies they subsequently employ.

There is still no guarantee that is will impact on Sydney and Melbourne market heat but it may mean there is less available for lending into other markets. So it is even possible that we may see a widening of the gap between Sydney/Melbourne and the rest of the Australian markets.

Fourthly

For as diverse the property markets are across Australia, so are the property consumers. How might different groups of people be affected?

There are some areas where first-time buyers can’t afford to buy a property where they want or need to live, so they become investors in order to enter the property market. These people may be caught out, or caught short, by having to come up with a greater deposit.

Lending restrictions will have little effect on the massive influences of the Asian market because these buyers usually don’t fall into the ‘lower’ deposit category. 

APRA’s rulings may produce opportunities for some. 

Cashed up property owners who can draw on good equity may buy up investment property. APRA’s June quarter figures suggested an increase in the number of borrowers using 20 to 40% deposits, accounting for half the new housing loans for that quarter. 

If we do see a slow-down in the rate of property price growth in some Sydney and Melbourne suburbs, financially-able buyers may make a move upwards and free up more affordable property for first home buyers. 

With the pricing differential between the heated markets in Sydney and Melbourne, the traditional swell of migratory property buyers may be even more apparent.

The south to north trend takes property buyers to markets such as Northern New South Wales, Gold and Sunshine Coasts, and up to North Queensland where property prices are more moderate, yield is good capital growth predictions are healthy, which frees up investor capital to put into superannuation or indeed more property.

The rules haven’t changed though when it comes to buying well-located property close to transport, good job availability and having a growing population. And buying for investment potential rather than because you would want to live in yourself.

Where under supply is a recognizable problem, perhaps giving more support to developers and builders would better control pricing than would curbing investor borrowing.

Michael Davoren is managing director, RE/MAX Australia and RE/MAX New Zealand and can be contacted here.

Tags: 
APRA Housing Market

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