- Macroprudential tightening is a likelihood during the current cycle, warns RiskWise
- High chance it will be implemented during the next 12 months, they conclude
- When last introduced in 2017, house prices fell in NSW
If investor activity accelerates, the market regulator is “quite likely to step in”, warns Pete Wargent, co-founder of BuyersBuyers.com.au.
As low mortgage rates encourage more property investors, macroprudential tightening is a likelihood during the current cycle, added Riskwise Property CEO, Doron Peleg.
“Based on our analysis and previous events (particularly the measures implemented in 2017), the likelihood that such measures will be implemented within the next 12 months is relatively high,” he said.
The warning comes amid calls for the Reserve Bank of Australia (RBA) to interfere to cool the galloping property market. However, Governor Philip Lowe has reiterated that the central bank “does not, and should not, target housing prices.”It has been suggested the Australian Prudential Regulation Authority (APRA) could make a move instead.
Mr Peleg explained that indicators point towards a combination of measures such as a “change to the floor assessment rate at the individual loan level, … LVR restrictions or caps at the portfolio level [and] potential debt-to-income (DTI) ratio restrictions at the portfolio.”
“Since recent cycles have suggested that property investor activity tends to amplify the property market cycles, it is likely that credit restrictions would significantly stymy growth, if not cause the market to stall or decline moderately.”
Doron Peleg, Riskwise Property CEO
NSW property investor activity versus house price growth
As shown in the above graph, after measures were introduced in 2017, house price growth in New South Wales significantly declined with the proportion of investors declining gradually until levelling out last year.
In terms of advice, Mr Wargent said property investors should remain vigilant of changes to lending standards.
He urges investors to:
- not wait until credit restrictions are implemented, as it will be substantially harder to get a loan;
- Ensure sufficient funds to cover unexpected events, such as an increase in interest rates;
- Focus on family-suitable properties, such as freestanding houses in areas with good access to the major employment hubs;
- Look for ‘A-Grade’ properties that ‘tick all the boxes’ and do not have any major issues in relation to location; and,
- Family-suitable ‘A-Grade’ properties – which enjoy better demand, including when the market is weaker.
“…We know from recent history that the regulators won’t want investor lending to run too hot, so it makes sense for investors to prepare accordingly rather than be surprised by restrictions as and when they do happen,” concluded Mr Wargent.