Credit data released by the Reserve Bank of Australia (RBA) in March 2016, shows a further decline in the amounts borrowed by investors for housing. Based on this data, financial experts suggest that declines in demand are due to the tightening of lending guidelines, proposed negative gearing legislation changes, and the residential property market experiencing declining values. Let’s look at the data in greater detail.
The latest data released by the RBA shows that housing credit, for the private sector, was recorded at $1.536 trillion, and has increased by 7.3% over the year. Since 1981, housing credit records kept by the RBA depict a continued growth in housing credit. However, housing credit expansion, on a historic level, has slowed year-on-year.
Credit experts suggest that slowing is due to low-interest rates and the fact that credit holders are paying back credit quicker. Also, the values of homes are higher than 1981 property values. According to data, though, housing credit is expanding at a rate of between 7 and 7.5% over the last 15-months.
In 1991, housing credit data was divided between houses and units for owner-occupiers and investors. Since this date, investor housing credit has grown at a faster rate than owner-occupier credit.
Over the last 12-months, investor housing credit rose by 7.9%, the slowest rate since February 2014, and well below its peak rate of 11% witnessed in 2015. Owner-occupier credit growth, on the other hand, reached a high of 6.9% per annum. This sector’s fastest growth since October 2010.
Between 1991 and 2015 housing credit for investors rose from 16% of total housing credit to 35.8% of total housing credit. This rise depicts how popular residential property investment has become since the 1990s.
Changes to lending made by the Australian Prudential Regulation Authority (APRA) saw investor housing credit restricted to a growth rate of 10% per year for each lender. Credit growth for investor housing is now well below this rate. Figures for housing finance to December 2015 revealed that investor finance has increased marginally.
Financial experts are suggesting that investor numbers will remain subdued due to lenders increasing interest rates independently and there now being a division between investment loans and owner-occupier loans, with the former being charged more in interest.
Yes, the Federal Opposition has indicated that they will make changes to negative gearing policy if they are elected. Though these changes are yet to be determined. There is speculation that taxation policy will change, which may hinder investors so this will become a disincentive for buying. However, with interest rates falling further and these rates being at their lowest, even with independent rate rises, investor numbers are expected to remain consistent over the next 12-months.
Another factor that is expected to suppress investor numbers is the fall of Sydney and Melbourne property prices. These capital cities have seen expediential growth over the last four years, and now the market in these regions is said to have peaked, and they are now moderating.
Property values in Darwin and Perth have also fallen, with further concern over rental yields. Mining investment declines in these regions are said to be the main cause.
However, not all property investors will be deterred from buying property, say financial advisors. As those investors who are seeking to invest long-term know that housing returns are far higher than any other asset class. These investors also know that, as with any other asset, the market will fluctuate periodically.
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