APRA crackdown won’t slow investors: analysts

The latest attempts by the banking regulator to cool the housing market will not address financial stability concerns or slow investor lending, analysts say.
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It comes as the Reserve Bank of held the cash rate steady at 1.5 per cent for the 12th consecutive month amid growing pressure for it to increase rates to contain soaring house prices.

Morgan Stanley said the latest measures by the n Prudential Regulation Authority would reduce the amount of higher-risk lending.

But it said it was “not convinced that they will materially slow growth in investment property”.

“In fact, there is still incentive for banks to lend to investors, as return on equities on investment property loans are now 14 per cent higher than [returns] on owner-occupier loans,” it said.

Soaring house prices in Melbourne and Sydney prompted the APRA on Friday to tighten rules around interest-only lending while the n Securities and Investments Commission moved on Monday to raise scrutiny of the same category.

This has triggered mounting pressure on the government to put tax breaks for property investors such as negative gearing and capital gains tax concessions under review.

New data on Monday from CoreLogic showed house values surged another 1.4 per cent across in March, pushing annual price growth to 19 per cent in Sydney and 16 per cent in Melbourne.

House values in Sydney are now growing at their fastest yearly rate since November 2002, while growth across all capital cities is at a seven-year high (12.9 per cent).

The Reserve Bank of kept the official cash rate on hold at 1.5 per cent on Tuesday.

RBA Governor Philip Lowe said conditions in the housing market continued to vary considerably around the country.

“In some markets, conditions are strong and prices are rising briskly. In other markets, prices are declining,” he said.

“In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for two decades.”

Dr Lowe said the recent APRA changes would help address risks associated with high and rising levels of indebtedness.

“Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income,” he said.

“Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions. A reduced reliance on interest-only housing loans in the n market would also be a positive development.”

Stephen Walters, a chief economist at the n Institute of Company Directors, said the RBA was sounding more anxious about housing.

“It hints that the behind the scenes debate among officials on housing market risks has stepped up another notch, with the various regulators now all pulling firmly in the same direction,” he said.

Morgan Stanley said the softer-than-expected APRA changes left the door open for interest rate rises and further capital requirements for banks, which the regulator could pursue in June. This could add up to $16 billion to major bank capital requirements, it said.

It also predicted house price growth to slow.

“It would be naive of us to claim a material house price correction is inevitable and imminent. However, slower loan growth and house price weakness look increasingly likely,” analysts said.

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