Macroprudential measures introduced to curb the amount of lending to investors by banks are safeguarding the nation from systemic risk as intended but are also disproportionately weighing on certain property buyers.
While the clampdown appears to be cooling investor demand for loans against residential property as desired, and reinforcing the soundness of the financial system, there are complaints of unfairness on at least three fronts.
The banks have achieved an unlikely windfall from the crackdown on the escalation in investor loans, raising borrowing charges to potential landlords by 27-to-30 basis points. This will add $340 million a year to revenue at NAB, for example.
Lenders could have chosen to only impose the additional cost on new customers, but instead have gone ahead and charged it on both pre-existing and new loans as they scramble to shore up their return on equity, which is under pressure from the regulator’s new and tougher capital requirements.
This has “ambushed” existing borrowers and broken the implicit agreement that the variable rate would only change with the banks borrowing costs, as Terry McCrann recently pointed out.
Property Investment Professionals of Australia chair Ben Kingsley accuses that the banks of being opportunistic and unfair in increasing borrowing costs for investors, and some owner-occupiers, who bought into the market some time ago.
This “detracts from what should be the common goal of creating a balanced property market,” says Kingsley, who recommends ditching the blanket approach and suggests instead restricting borrowing power for new investors in locations where the market is particularly heated.
“APRA should take a more transparent approach, rather than continue its current closed door tactics,” he says, arguing for more industry consultation and exploration of alternative methods.
That a peak body like PIPA is upset is perhaps not so very surprising. But there are other unintended consequences.
As a blunt and blanket national instrument, the new requirements arguably hit regional areas unfairly.
While the Sydney and Melbourne property markets have been running hot, growth rates in regional New South Wales and Victoria are much more varied. And Western Australia and Queensland are having an outright downturn in parts, with property prices falling substantially in areas such as the Pilbara.
Figures on the proportion of the housing stock owned by investors and owner-occupiers are not readily available, as the Reserve Bank’s June “Submission to the Inquiry into Home Ownership” noted.
The RBA draws on the Census data, which suggest that in 2011 around 68 per cent of the occupied housing stock was owned by owner-occupiers. The share of housing rented from real estate agents and other private individuals, which could be assumed to be owned by individual investors, was 23 per cent.
The investor share is likely to have risen a little further over the past few years, the RBA notes, as investors have accounted for an increasing share of property purchases since 2012, based on loan approvals.
That data shows investors’ share of loan approvals has risen from a little over 30 per cent in 2011 to almost 40 per cent recently, with the increase most pronounced in New South Wales. Investors make up a larger proportion by value as investors show a greater propensity to have a mortgage than owner occupiers.
Crucially, the proportion of the housing stock owned by investors appears similar in metropolitan and regional areas, the Reserve Bank said.
So the new measures will act as a deterrent to investors wanting to buy in parts of the country that need that demand and stimulation to prices, arguably for the good of the economy.
Another criticism is that for all the hoopla over foreign property buyers, the crackdown on investor loans will only aid cash buyers from China, or those borrowing offshore, by taking out local competitors.
While that won’t bother APRA and its remit to ensure a strong and resilient banking system, it can be argued to give an unfair advantage to some investors over others.
“It is the health of the financial system that is super important but what you must also do is make sure there are no more distortions between supply and demand,” says CommSec chief economist Craig James.