Rising lending to investors in Australian commercial property poses a potential danger to financial stability although the risk appears manageable for the time being, the assistant governor of the nation's central bank said.
In a speech Friday delivered in Queensland state, Malcolm Edey pointed to a divergence over the past few years between trends in commercial property prices and rents. Rents have remained flat while property prices have been rising, he said.
"The commercial property sector is again experiencing strong investor demand and bank lending to the sector is increasing," Mr Edey said. "There are a number of signs of increasing risk."
Strong demand from foreign buyers has contributed to this, Mr Edey added, reflecting the global environment of low interest rates and the search for yield.
The assistant governor also spoke about the residential property market, saying recent supervisory measures had helped reduce some of the risks associated with soaring house prices linked to investor lending.
"There is... some tentative evidence that sentiment may be turning in the housing markets in the two largest cities," namely Sydney and Melbourne, Mr Edey said. He also said that the level of investor activity in the housing market had been found to be higher than previously thought.