When one goes witch hunting in Australia’s property market, it’s likely you’ll be seeking out villainous overseas and local property investors to burn at the proverbial stake. After all, we’re the evil force that must be stopped from securing our financial future through real estate.
It’s no secret that a lot of scapegoating continues to occur around Australia’s continually climbing property prices, which many analysts say are heading toward ‘unsustainable levels’ of growth.
Seriously though. Why wouldn’t you want to park your money in something relatively risk free, offering generous returns, in a low rate environment, when the same low rate environment is seeing savings account returns tank?
Really, it’s not rocket science. So yes, chances are as more people become educated around things like superannuation and a self secured retirement income, we will see further activity in the housing market from investors.
This is where things start to get interesting though. You see, all of that vilification worked to make regulators swoop in and mount a direct assault on lending to investors for property acquisitions.
They told the banks no more than 10 per cent growth in investor based borrowing per annum was allowed! And the banks seemingly complied, upping interest rates independent of the RBA in a series of calculated moves over the past 18 months or so.
Everyone applauded the apparent capital gains slowdown that ensued.
But now it seems heated markets didn’t actually lose that much appeal in the wake of a couple of percentage points. The hiatus was remarkably brief, and minimal in terms of any real cooling effect.
Up again
Reports from the Reserve Bank indicate that housing investor credit grew by 0.8 per cent in December. While separate data from the ABS revealed an investor led surge in lending by 4.9 per cent for November, with both figures representing the largest monthly increase since June 2015.
This wasn’t an isolated incident either. Rather, it was the sixth increase in seven months, rocketing the value of investor finance up by 21.4 per cent on the previous year.
Of course with CoreLogic spreading good tidings of a price rise in Melbourne and Sydney’s housing markets to the tune of 0.8% and 1% respectively, there are no prizes for guessing the correlation being drawn.
And with data indicating an annual median dwelling price rise of 16% for Sydney and 11.8% for Melbourne, even as gross rental yields drop to record lows; it’s once again investors in the hot seat.
CoreLogic’s head of research Tim Lawless says, “While rental yields plumb new lows, investment in the housing market has been consistently ratcheting higher which implies that investors are speculating on further capital gains in the housing market.”
Well Tim, with the associated tax benefits of investing in property and capital gains in the vicinity of 99.4 per cent for Sydney and 85 per cent for Melbourne since 2009, who could blame us for ‘speculating’?
Of course this means we are also placed firmly in the affordability blame firing line. Investors have become the perceived bane of the humble middle income earning Gen Y’s and Millenials.
Stoking the investor driven fire
But what of the role Australian and overseas lenders have to play in our continuing property prosperity?
The only reason investors have been able to extend our reach into real estate is, after all, because the banks were willing to fund us to do so. They had cheap credit on offer, and we took them up on that with handfuls of our own equity.
Well as we know, the lending ‘free for all’ that saw banks enticing investors in with special offers was nipped in the bud around the middle of 2015. The banks were slapped on the wrist and told to behave. Regulators thought the brakes had been applied.
But was this ever really the case?
Blurred lines
Interestingly, the banks are currently undertaking a somewhat collective reshuffle of their lending books. Coincidence? Perhaps. But it does seem more like convenience.
Latest monthly figures from industry watchdog, the Australian Prudential and Regulatory Authority (APRA), included a staggering $3 billion revision to ING Bank’s investor and owner-occupied loans, as some of the major players continue to reclassify their respective lending books.
Whilst distorting the overall lending landscape when it comes to who owes what and the assets securing that debt, this data revision also means lenders are claiming less exposure to the heated property investment market than what regulators first thought.
The Reserve Bank recently published figures estimating that $48 billion worth of loans had been reclassified over the past 18 months, with $900 million switched in December alone.
The trigger? Why, that regulatory intervention of course, which saw vast amounts of borrowers switching the purpose of existing loans.
Martin North of Digital Finance Analytics said, “There are adjustments in these numbers which make them pretty useless, especially when looking at the mix between investment and owner-occupied loans.”
He said poor quality data collection, keeping and management by lenders, along with a lack of transparency, were making it nigh on impossible to form a clear picture of the housing market.
“Given the debate about housing affordability, we need better and consistent data,” he said.
Whether it’s a happy coincidence due to antiquated internal accounting practices, or something contrived to appease the ‘powers that be’, RBA governor Philip Lowe says lenders are “complicating” the central bank’s understanding of the housing market, and clouding APRA’s ability to properly monitor investment lending growth.
The recent reclassification undertaken by ING for instance, means the lender’s investor book has diminished by a rather impressive 40 per cent over the past year alone.
What does it all suggest? Well, for one, it might be time to start looking at the actual cause of all the calamity and stop pointing the finger at mum and dad property investors simply trying to get ahead in retirement.
If lenders are prepared to dish it out (and then casually reclassify it), chances are there’ll be enough willing recipients waiting in the wings (with a bunch of equity) to take it.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).