Investors are walking away from the property market in droves, stalling bank lending growth even before the recent debate about winding back negative gearing benefits.
In a weak start to the calendar year, property investment lending increased just 0.3 per cent in January for the second straight month in a row, according to the Reserve Bank’s monthly credit data.
The sluggish demand dragged the three-month annualised growth rate down to a record low 1 per cent, according to Goldman Sachs, as the banking regulator’s efforts to slow investor lending and tighten lending standards take hold.
While predating Labor’s plan to only allow investors to negatively gear newly built properties, the data highlights the shift in the market after the Australian Prudential Regulation Authority in December 2014 stepped in to revise bank lending policies.
APRA’s policies, including that banks cap investor lending at 10 per cent, pushed annual growth to 7.9 per cent in January, a near two-year low. Along with the cap, banks have also been lifting lending standards after APRA publicly aired concerns.
While owner-occupied growth ticked up to 6.9 per cent, total housing credit — which is banks’ biggest earning asset class and their primary source of growth in recent years — slowed to 7.3 per cent.
Also, a pick-up in lending to companies in the month failed to offset the recent downward trend that has lowered annual business credit growth to 6.2 per cent.
“Stricter lending standards and a further softening in conditions in the housing market may become more evident in the housing credit data over time,” Goldman economist Tim Toohey wrote to clients in a note.
In contrast, ANZ’s economists said higher auction clearance rates and improved sentiment could boost housing credit growth in coming months.
The credit numbers come amid a fresh debate about a housing bubble after a bearish report by a British economist and a Sydney hedge fund that forecast massive price falls and alleged sloppy lending practises from brokers and banks.
CLSA banking analyst Brian Johnson weighed into the debate, saying that while there were a “lot of negatives” clouding the market, a national house price crash remained a “tail risk” rather than a looming certainty.
“Australian house prices look ‘bubblish’ but ... the bubble could get bigger,” he said, pointing to five factors supporting the market including low unemployment, favourable support and demand dynamics, and tax concessions.
Extrapolating Commonwealth Bank’s revised mortgage stress-test of a “severe but plausible commodities-led recession”, Mr Johnson estimated the big four banks would face a $9 billion upfront earnings hit. But he said “any rational analysis” of the banks’ housing risk must be prefaced by the fact that the product structure of the bulk of loans was “structurally lower risk” than in the US when rising defaults triggered the global financial crisis.
But he remained concerned the housing market would become bifurcated as Sydney and Melbourne stay “uber-expensive” while Brisbane and Perth were vulnerable to collapse, a hit that would be worst for CBA due to its ownership of Bankwest.
“Alternatively Australia’s ‘bubblish’ housing prices could be ‘fixed’ by an extended period of no growth as households pay down their bloated debt,” he said.
“This has happened elsewhere. However, the prospect of households paying down their debt is not necessarily good for Australian bank revenues.”
John O’Connell, chief investment officer at Macquarie’s banking and financial services division, has said good jobs growth made a housing crash a “risk to be monitored rather than a fait accompli”.
The Australian