Signs of slowing in Sydney after APRA's property bubble crackdown: HTW

Signs of slowing have emerged in Sydney property markets after the four major banks increased their standard variable interest rates to be slightly higher for investment loans over owner occupier loans to meet the APRA requirements, according to valuation firm Herron White Todd.

The banks had also introduced tougher loan-to-value standards in response to a move by regulators to rein in the riskier corners of the country’s house price boom, the HTW November review advised saying there was now often a maximum of 80% loan to value ratio for investors. 

"We have not seen the full effect this will have on the property market as yet, however we are seeing signs of slowing." 

The 80% was providing a significant buffer for the banks "however it becomes harder for an individual to actually save the 20% deposit or to use the existing equity in their primary dwelling or portfolio for the deposit.

"With fewer people able to access the 20% deposit, there will be fewer investors in the market," the valuation firm advised.

It suggested that this could lead to less demand and more supply which directly affects the value of a property. 

"There are signs that the market may be cooling," the report added noting there had been a continual decline in auction clearance rates in Sydney from low 80% in July 2015 to mid 60% in October 2015 according to Corelogic RP Data. 

"This is a combination of the record number of auctions listed (so volume sold as a percentage is decreased), the expectations of vendors to exceed prices that were being achieved by neighbours no more than three months ago and a decrease in the pool of purchasers as we enter into a new wait and see phase of the property cycle." 

The review indicated that it is fair to say that much of the growth in Sydney in the past eighteen months has been fuelled by the investor market.

"On the ground, completing the mortgage valuations, we have seen that this has been a combination of local buyers such as baby boomers using the equity in their main dwelling to purchase additional property for their superannuation, interstate investors who have heard the get rich quick scenarios and are banking on quick capital appreciation and overseas investors looking to build a property portfolio."

The report went on to say that given that the recent APRA changes took effect mid year, it was "too soon" to say what the full impact of the tightening of bank regulations has been on the property market but indications are that the regulations appear to be working.

"This change in criteria could have a positive impact on the first home buyer market which traditionally competes heavily with entry level investors and could open up opportunities for the owner occupier."

The review concluded by suggesting Herron Todd White believe the investor market in NSW will remain stable over the medium term as the banks have not made it impossible to buy an investment property, they have just tightened their criteria.

"These changes will not exclude people from entering the market as investors but force them to be in a more secure financial position before entering into any agreements."

The November review also suggested that in the past few years Sydney has also had the benefit of many new developments partially due to a change in approval policy; partially due to the underlying demand and supply imbalance in the market and partially due to the demands of the overseas investment market that is regulated by government to the purchase of new property only. 

"This product is appealing to investors and owner occupiers as developers and the government offer benefits such as reduced or no stamp duty, monetary incentives and non-monetary incentives. 

"We have seen new developments or off the plan purchases become the most popular because of the combination of incentives received and, due to the heat in the market, the assured capital appreciation from purchase to settlement.

"To date we have not become aware of any changes in these policies and can only assume they will remain for the foreseeable future however doubt over immediate capital appreciation may see some investors withdraw."