Action to reduce foreign investor activity in the Australian real estate market seems to be taking effect, with many experts predicting this will continue into next year.
A year ago, the Australian Prudential Regulation Authority (APRA) announced it would be bringing in measures to curb lending to particular groups in the fear it was preventing other people from entering the market. Specifically, APRA targeted portfolio growth materially higher than a ten per cent threshold, while introducing loan affordability tests for new borrowers.
The first quarter of the year was dedicated to making sure these guidelines were followed, and it seems that APRA's intervention is starting to have an effect.
Investor lending bears the brunt
September figures from the Australian Bureau of Statistics (ABS) were the first sign that investor activity was starting to ease. Analysis of the data by the Property Council of Australia revealed an 8.5 per cent monthly drop in investment loans, bringing the level to the lowest since February.
Some experts have forecast that overseas activity could soon start to take a hit
In trend terms, the value of fixed loans for investment housing was down 1.9 per cent, while owner-occupied housing experienced a two per cent gain.
This has knock-on effects for property affordability, as investors are partly responsible for slowing housing growth, argues the Property Council of Australia. More data needs to be released before the full impact of these lending restrictions can really become apparent.
Overseas buyers take a back seat
This has led some experts to forecast that overseas activity could soon start to take a hit. Among them are Credit Suisse analysts Damien Boey and Hasan Tevfik, who suggested Chinese demand for Australian real estate, in particular, looks set to decline.
A research note from the group reported by Fairfax Media sources on 4 November revealed Chinese demand for global property is expected to be down 30 per cent in 2015. Although this is primarily because the Chinese economy has weakened, the APRA's measures are unlikely to have helped the situation.
SQM Research has also made its forecasts for the coming year, suggesting the depreciation of the Australian dollar is likely to play a prominent role. The group believes it will stay at low levels with the potential to decline even further, which will provide a boost for both the economy and housing market.
Ensuring the health of the property market
However, a slide in the domestic currency will only have a positive impact if overseas investors are able to secure the funds they need. Residential and commercial real estate will only be in high demand if the conditions are right in the home nations of international investors.
Investors play an important role in the real estate sector, which is why the market can't afford to exclude them completely. While the APRA restrictions will be helpful to an extent, the Property Council believes they should allow some headway.
"We need to closely watch the drop in lending to investors to ensure that the macroprudential measures don't go too far and reduce the levels of rental stock entering the market, which would push up rents," noted executive director of residential Nick Proud.
Demand and supply are two issues that cannot be ignored and investors play a key role in both. Making sure there's sufficient property for sale for both owner-occupiers and investment is therefore crucial to the overall health of the market.
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