The banking regulator in Australia may step in to curb lending in the investment sector of the country’s housing market if it continues to rise, a leading economist has warned.
The total value of investment housing commitments increased 3.2% on a seasonally adjusted basis over June fuelled in part by an interest rate cut that month, according to the latest data from the Australian Bureau of Statistics Housing Finance.
This followed a 5.3% increase in investor housing commitments in May.
If this level of investment growth continues for “another couple of months”, it would likely cause the Australian Regulation Prudential Authority to step in again to curb lending, AMP Capital chief economist Shane Oliver said.
The regulator introduced a 10% annual growth limit on bank loans to property investors in December 2014, and this resulted in a notable fall in investment activity last year. But if investment lending growth heads back towards this 10% level, APRA would “probably issue another directive”, according to Dr Oliver.
“There’s a risk APRA might consider lowering the threshold to 5% to 7%,” he said.
The rise in property investment levels reflects a strong underlying appetite for residential investment in Australia, particular among Chinese investors, which generally prefer to invest in Melbourne’s property market.
Chinese property buyers are the biggest group of offshore investors, having spent in the region of £14bn in the year to June 2015.
However, many foreign investors are now facing challenges of obtaining finance as the big four Australian banks tighten their lending restrictions to overseas nationals.