Investors pull back sharply from property investment

Investors pull back sharply from property investment
Investors pull back sharply from property investment

Australian investors are reducing their exposure to property, with new official data highlighting a pullback in investor home loans, which could help to take pressure off properly prices in 2016, according to the head of new banking business act., Amanda Watt.

However, a decline in first-time buyer numbers is a warning that house prices are still unaffordable for many Australians.

In October, the value of new home loans fell 2% to $32.6 billion, driven by a sharp 6.1% drop in the value of investor home loans to $11.5 billion.

At the same time, the value of home loans for owner occupiers rose just 0.4% to $21.2 billion, according to housing finance data released by the Australian Bureau Statistics (ABS).

The overall number of home loans taken by owner occupiers in October fell by 0.5% to 55,571.

In another sign that the Australian property market is slowing, the number of first-home buyer commitments as a percentage of total owner-occupied housing finance commitments fell to 15.1% in October 2015 from 15.4% in September 2015.

Fixed-rate loans, as a proportion of all new home loans, fell to 9.1%, their lowest level in four years, as investors took advantage of record low variable interest rates.

The average loan size for first home buyers rose $3,900 to $355,700. The average loan size for all owner-occupied housing commitments rose $3,000 to $382,400 for the same period.

“It appears that demand for housing is falling due to two reasons. First, the campaign by Australian financial regulators to take the heat out of property investment appears to be working effectively, with the value of investor home loans dropping sharply in October after prudential regulations were introduced to curb sharp rises in property investment," said Watt.

“Second, first home buyers have pulled in some areas, no doubt due to the very high level of property prices, particularly in Sydney and Melbourne, where unaffordability remains a bar to entry to the property market."

In May, banks tightened lending criteria such as loan-to-value ratio (LVR) after the Australian Prudential Regulation Authority’s introduced supervisory measures to cap the growth of investor lending. 

Then, at the end of June, APRA released a temporary directive to five banks requiring them to increase the amount of capital they hold against their residential mortgage exposures.

“We expect the level of property investment to continue to fall in 2016 as higher interest rates on investment home loans begin to take effect,” Watt said.

"No doubt, this will help to take pressure off property prices and give some relief to first time buyers in 2016," she said.

Act. is an innovative banking service that redirects profits back into social projects. For each product act. has, including home loans, act. allocates ‘impact dollars’ – real dollars taken from the profit it earns – and it gives them back to its customers, who can then donate to a project of their choice listed on letsact.com.au.

Act. recently won Money magazine’s 2016 Best of the Best award for Best Innovative Banking Product.

“This award acknowledges that act., which was launched in November 2014, is a world-first banking model which is changing banking for good. act. gives control to each customer to decide when or where their profit allocation is spent.”

“act. blends retail banking with crowdfunding, offering consumers an opportunity to create their own social impact, by choosing how a portion of profits generated from their own banking is distributed to social and not-for-profit projects.”

act. celebrated its first birthday in November, after a strong start. “More than $150,000 has so far been raised for some awesome community projects. We thank our customers and partners so much for their continued effort in supporting act.,” said Watt. 

For your free Property Observer eBook from RAMS, 12 tips for first-time buyerscovering everything you need to know when it comes to purchasing property, click here.

Tags: 
Home Loans Resdential Market

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