The heat is on for property investors as the Reserve Bank of Australia warns about growing speculative activity in the sector.
It noted in its latest statement that “strong investor demand can be a sign of speculative excess, with the risk that additional speculative demand can amplify the cycle in housing prices and increase the potential for prices to fall later. This is particularly the case if that demand is largely based on unrealistic expectations of future price growth, perhaps extrapolated from recent experience”.
As such the RBA is now closely monitoring the banks’ lending practices to ensure that they remain prudent. In addition, the central bank and APRA are now looking at taking further steps to ensure the banks maintain sound lending practices towards investors.
Shane Oliver, chief economist with AMP, said this could involve credit-rationing, which the Bank used before the 1980s. This could involve limits on loan to value ratios, forcing banks to put aside more capital or forcing banks to impose tougher tests when granting loans.
“Normally with the property market hotting up, the RBA would start to think about raising interest rates but right now it’s loath to do this given the uncertainty regarding the rest of the economy and the risk a rate hike would put upwards pressure on the still too high Australian dollar,” said Oliver.
Property prices in Australia’s two major cities, Sydney and Melbourne, have grown strongly on the back of a record low interest rate. This rapid growth has triggered warnings about a property bubble and potential price crash.
Oliver noted that while the property market is currently over-valued, “it’s not at the bubble extreme it was a decade ago”.
In his view, the overvaluation is a bit more modest with the annual housing credit growth for owner occupiers and investors running at around one third the pace seen in 2003 when the property market boomed.
“Australians don’t seem to be using their houses as ATMs against which debt can be drawn, suggesting they are less comfortable regarding the outlook and debt; and the home price gains now have been over a shorter period and are concentrated in just Sydney and Melbourne. However, danger signs are emerging.”
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker
Top Suburbs :
Get help financing your investment
Do you need help finding the right loan for your investment?
When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.
Just fill in a few details below and we'll then arrange for a local expert Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus, our mortgage broking service is at no cost to you.
We value your privacy and treat all your information seriously - you can check out