An item in the Federal Budget that hasn’t received much coverage is the plan to allow the Australian Prudential Regulation Authority (APRA) to target property lending in specific geographical regions.
This means APRA will get the power to restrict lending in property hotspots if Parliament passes the Budget. At present, the blanket restrictions APRA can impose don’t distinguish between the widely divergent housing conditions across the country.
“Empowering APRA to apply different macro-prudential policies to different regions will allow the regulator to introduce measures that specifically target areas where risks are greatest and not affect areas where property market conditions are not deemed a threat,” credit rating agency Moody’s says in a report.
Property investors have been hunting around for alternative funding sources since late 2014 when APRA imposed lending curbs on investment loans. The winners have been non-bank lenders, which have “significantly increased” their investment and interest-only loans, Moody’s says.
Value of finance approvals by segment
Investment loans now account for 36% of loans included in mortgage pools that are bundled up by non-banks and sold to institutional investors. That is up from 16% in 2015. Meanwhile, interest-only loans account for 46% of non-bank residential mortgage-backed securities pools, up from 21% in 2015.
APRA’s ability to target markets may also help the Reserve Bank of Australia (RBA) get more comfortable with the idea of cutting interest rates again, which potentially would benefit the wider economy. The RBA has been wary of making another cut fearing this may add fuel to already flaming property markets in Sydney and Melbourne.
Nevertheless, the national housing market is already showing signs of cooling. Tim Lawless, Head of Research at financial analysis and advisory firm CoreLogic, says this is “particularly in Sydney and Melbourne where affordability constraints are more evident and investors have comprised a larger proportion of housing demand”. The CoreLogic hedonic home value index showed a 1.1% fall in dwelling values across the combined capitals over the seasonally weak month of May.
Source: CoreLogic RP Data
Over the three months to the end of May, capital city dwelling values rose by a modest 0.4%, while four of the eight capitals recorded falls. Sydney dwelling values were unchanged, while Melbourne values rose 0.7%.
Lawless says a dent in consumer confidence may also be contributing to slower growth conditions. “Consumer sentiment towards housing, as measured by Westpac and the Melbourne Institute, showed a marked downturn in May,” he says.
“In particular, the Westpac ‘time to buy a dwelling index’ fell 6.5% over the month. According to Westpac, ‘consumer sentiment towards housing shows an increasingly negative view’.”
Meanwhile, the first-quarter gross domestic product (GDP) figures show households are saving less, as prices for utilities, insurance and fuel rise but wages don’t.Low consumption growth poses big risks to the economy, and GDP slowing to just 1.7% year on year – the weakest expansion since the September quarter of 2009 – should be ringing bells.
Low consumption growth poses big risks to the economy, and GDP slowing to just 1.7% year on year – the weakest expansion since the September quarter of 2009 – should be ringing bells.
reposted from Prime Capital