The APRA impact on 2015 property investment

Officialdom decided last December that property investor lending needed to be restrained given the emerging trend of more money being lent to investors than owner occupiers.

The Australian Prudential Regulation Authority introduced a cap on allowable growth in bank lending on residential investment loans.

This eventually impactful decision got lost amid the seasonal Christmas break, and further from mind when the Reserve Bank of Australia cut the cash rate to 2.25% at its opening February 2015 meeting.

Growth in credit extended to investors had increased by 10% during 2014, right on the APRA threshold for its intended stricter scrutiny of lending practices.

Owner-occupier credit growth had at around 5.5%.

Of course APRA was technically not targeting house price levels – but rather setting benchmarks for a safer banking system.

The early 2015 auction competition saw no handbrake in the battle between home buyers and investors.

Reaching fever pitch, clearance rates peaked in March at 82%, according to CoreLogic RP Data, with properties typically knocked down at record prices especially in cheaper outer Sydney districts where auction had never been the normal means of sale.

It was soon obvious that the subtle backroom macroprudential measures needed to be intensified.

The jawboning by the RBA and APRA became more emphatic. The banks were told to look at loan-to-valuation ratio limits which made it harder to get an investor loan. Interest only loans became a rarity. Off the plan buyers were told they'd need to fund 20% of their apartment purchases. Finance approvals for house and land lots were being delayed until preliminary works had been completed. One bank even stopped all new lending to investors.

Events and issues then combined that further unnerved the housing market. There were signs of a retreat in foreign buyers as Treasurer Joe Hockey launched his crackdown on overseas buyers who were boosting prices in select suburbs. Financial inquiry chief David Murray raised the prospect of negative gearing reform. Doubt was cast over the future of self managed super funds being able to borrow.

In May Treasury secretary John Fraser warned that Sydney was in a housing bubble. The RBA governor Glenn Stevens wasn't wrong in June when he said some crazy prices were being paid. 

Against a backdrop of high household debt, subdued income growth and fluctuating unemployment, the negativity clincher came after the banks raised home loan rates in mid-October given long foreshadowed rules forcing banks to hold larger loss-absorbing capital buffers.

By this time the entire Sydney property market was primed to be spooked. Auction clearance rates - which are a good sign of market sentiment and price growth - swiftly fell in the outer suburbs dipping sometimes into the 40s. Traditional auction hotspots, Sydney's inner west and eastern suburbs then took fright too.

Buyers just were not as prevalent - especially investors - and those who turned up kept their bidding restrained.

It is not quite lights out for the investor, but it has been getting darker, was how the valuation firm Herron Todd White has described the turn of events.

"We see the will is still present, but the ability to finance the dream is diminishing,' its November review advised as APRA's measures now extend well beyond the Sydney market into regional NSW.

The Australian Prudential Regulation Authority (APRA) recently released Quarterly Authorised Deposit-taking Institution (ADI) Property Exposures for the September 2015 quarter showing the slowing in lending to investors.

The publication contains information on ADIs’ commercial property exposures, residential property exposures and new housing loan approvals. 

Key statistics for ADIs (excluding Other ADIs) for September 2015 were: 

Key statistics for ADIs with greater than $1 billion in housing loans for September 2015 were: 

The Australian Prudential Regulation Authority data on showed the value of loan approvals for property investors fell to $32.39 billion in the three months to September 30 down from $40.55 billion in the June quarter.

Loans to property investors made up around 35 per cent of new lending approved in the September quarter, the lowest in the past two years, and down from around 43 per cent in the June quarter.

Analysts however are treating the data with some caution as several banks have been busy reclassifying billions of dollars in home loans.

This article was first published in the Saturday Daily Telegraph.