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Banks closing ranks to crowd out investors

27 May 2015 Nick Bendel, Vivienne Kelly

Australia’s real estate market is poised for a major shake-up as banks increasingly start freezing out investors.

Australia’s real estate market is poised for a major shake-up as banks increasingly start freezing out investors.

All big four banks have now responded to regulatory concerns by making it harder for investors to access mortgages. A range of smaller lenders have done the same.

SQM Research managing director Louis Christopher said there was no doubt these measures were intended to reduce the burgeoning investor sector.

“It’s designed to take some of the weaker investors out of the market and it will do that, so there will be some impact upon demand,” Mr Christopher said.

Joe Sirianni, executive director of Smartline Personal Mortgage Advisers, said the changes were most likely to affect investors who were looking to aggressively grow their portfolios.

The most recent data from the Australian Bureau of Statistics, for March, reveals the strong growth in market share that investors have made in the past three years.

Investors represented 33.8 per cent of mortgage lending in March 2013, 35.2 per cent in March 2014 and 40.8 per cent in March 2015.

Investor lending volumes were growing at 18.6 per cent per annum in March 2013 and at 32.1 per cent in March 2014 – but that has now fallen to 20.6 per cent.

With investor lending growth slowing, there is a risk that this crackdown could go too far and reduce too much demand from the real estate market.

The latest CoreLogic RP Data statistics show that while Sydney is booming and Melbourne is strong, price growth in the other capitals is either slightly above or below the inflation rate.

As for Sydney, which is driving the investor surge, a sharp decline in price growth may already have been coming, as Residential Property Manager recently revealed.

Domain Group senior economist Andrew Wilson said it made no sense for the regulators to try to cool the Sydney market.

“What is the problem we're trying to solve here in Sydney? We have strong price growth, but we're already starting to attract higher vacancy rates and the market will adjust, as it does,” Mr Wilson said.

“Where are the signs of stress? We have minimal levels of mortgage defaults. Of course, it is difficult for first home buyers, but first home buyers usually work against the cycle – the number of first home buyers rises as prices fall.”

Mr Wilson said Sydney has previously experienced higher levels of price growth, yet has made “orderly adjustments” once the boom ended.

Banks are also being careful with their lending and are operating in a “very strict financial regulatory environment”.

Banks closing ranks to crowd out investors
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