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.
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