Many investors have been arguing on which location they should locate new buildings and other type of properties. Some believe that they should choose Brisbane over Sydney, while others want Melbourne and Sydney.
Choosing the right location for property investment is very critical and it is a very difficult task. The most important question is, if the chosen area could help pay up the loan that the investors have made.
In the RBA’s biannual Financial Stability Review released this week, it outlined the “housing and mortgage markets are becoming unbalanced” and experts say it’s time for Australians to listen up as they reassess macroprudential policies which limit higher risk lending.
RP Data’s senior research analyst Cameron Kusher said the excitement among investors had been difficult to control and they continued to optimise their ability to negatively gear their property investment and pounce on the record low-rate environment.
“The strong level of investor demand and strong growth in investor demand is mainly a Sydney and Melbourne-centric issue so outside of those cities you are not seeing those factors at play as much,’’ he said.
“The RBA hasn’t stated exactly what they intend to do but they have highlighted that there’s concerns about the level of investor activity and potentially down the track it could create price falls in the housing market.
“It’s inner city apartment markets within the 10km radius of the CBD that remain popular to investors so any changes to lending here would have an impact on those properties.
“It would probably slow down demand and mean some of these newer developments may not go ahead if they can’t get these sales.”
REPAYMENT TRAPS: Some borrowers choosing to pay interest-only
House price increases in the other states have failed to keep pace with NSW and Victoria.
In the past 12 months property price rises in the other capitals include Adelaide (+5.9 per cent), Brisbane and Darwin (+5.4 per cent), Perth (+3.5 per cent), Hobart (+2.8 per cent) and Canberra (+1.4 per cent).
Mr Kusher said the level of capital growth was not going to continue forever and he said if changes were made to lending rules it would likely be done at a national level.
“The Reserve Bank looks at financial stability across the country so I can’t see them making one set of rules for Sydney and Melbourne and a different set of rules for the other capital cities,’’ he said.
“Capital growth outside of Sydney and Melbourne has been pretty sluggish really since the global financial crisis.
“So you run the risk when you introduce these (new rules) of further underperformance in those other markets outside of Sydney and Melbourne.”
The RBA said it was in discussions with the banking regulator, the Australian Prudential and Regulation Authority and other members of the Council of Financial Regulators to make “additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors.”
Almost 12 months ago in New Zealand they introduced limits on loan-to-value ratios to borrowers with less than a 20 per cent deposit to only 10 per cent of new lending.
This move has also been combined with interest rate hikes.
HSBC’s chief economist Paul Bloxham said credit conditions were already being tightened in Australia and further measures were likely to come.
“Credit tightening measures would be likely to take some of the heat out of the housing market,’’ he said.
“The most common way these tools are being used is by putting a cap on the amount of lending that can be done.
“But the New Zealand experience shows it cuts out first homebuyers from the market and that’s part of the reason why the regulators have been reluctant to do this because it has distributional consequences.”
Mr Bloxham said it could see house prices slow but not necessarily fall if further lending tightening measures are rolled out.
“The major driver of what is supporting the housing market is low interest rates and, unless interest rates rise, I think the housing market will still continue to grow and housing prices will continue to rise.”