Interest rates may not be going anywhere soon but that doesn’t mean regulators won’t take any action to curb property investment in Australia to stop the rapid rise of housing prices.
So will property investment in Australia keep booming until then?
One determining factor might be if any other macroprudential tightening happens. Or to put it another way, if regulators make changes other than increasing interest rates to cool the overheating property market.
What regulations might be implemented on property investment in Australia?
Doron Peleg, CEO of property research firm Riskwise, thinks there might be some, if 2017 is anything to go by.
Back in 2017 the market was heating but cooled down with banks tightening their lending standards among other measures.
Some he thinks are on the table are:
- Changes to the ‘floor assessment’ rate at the individual loan level
- LVR restrictions or caps at the portfolio level
- Potential debt-to-income ratio restrictions at the portfolio level.
“The likelihood that such measures will be implemented within the next 12 months is relatively high,” Peleg said.
“Since recent cycles have suggested that property investor activity tends to amplify the property market cycles, it is likely that credit restrictions would significantly stymie growth, if not cause the market to stall or decline moderately.”
Our cousins in New Zealand have had their central bank tighten lending standards in recent months after a similar boom in housing and mortgage lending.
The Reserve Bank of New Zealand now mandates that new loans must be less than 80 per cent of the values for owner occupiers and under 60 per cent for investors.
So how should investors prepare?
Pete Wargent of BuyersBuyers.com.au says above all else investors need to be prepared.
While this might be stating the obvious, investors have been caught out by past changes.
“We know from recent history that the regulators won’t want investor lending to run too hot, so it makes sense for investors to prepare accordingly rather than be surprised by restrictions as and when they do happen,” he said.
Wargent said would-be buyers shouldn’t wait until credit restrictions were implemented as this would make it harder to get finance.
Additionally investors should have sufficient funds to cover events such as a rise in interest rates.
When searching for property, Wargent says investors should look for “A-Grade” properties, particularly family-suitable properties.
Good traits were access to major employment hubs in the eastern states and properties that did not have issues such as location to main roads.