ASIC regulations a 'sledgehammer,' REIA warns

by Miklos Bolza13 Apr 2017
The Real Estate Institute of Australia (REIA) has urged for caution around actions by banks and regulators to limit bank lending and dampen growth in investor property.

“Whilst warnings about interest-only loans and over committed borrowers might be justified in some circumstances it does not mean all interest only loan borrowers should be penalised and outlawed,” said REIA president Malcolm Gunning.

“The cumulative impact of the collective action of APRA, ASIC and individual banks could well be a sledgehammer when only some fine tuning was required.”

He urged care not to constrain the building and construction sector – an industry which has kept the economy going since the mining sector collapsed.

He pointed to anecdotal evidence which suggested that current curbs pose a real risk to the national economy. This evidence stems back to the abolition of negative gearing in the 1980s when Paul Keating was Treasurer.

“What this did is it stopped the construction market in its tracks. Secondly, rents started to rise within six months as supply dwindled,” he told Australian Broker.

“Rents haven’t risen significantly by the CPI in the last three to four years. Yes, there have been rent rises in the hot spots of Melbourne and Sydney but we’re talking trends on a national level.”

There is also a chance that the daily bombardment of “expert opinions” could quickly lead to a self-fulfilling doomsday prophecy, he added.

“The property market didn’t wind up in three months. It was a slow wind up from post-GFC. All the current restrictions that we’ve got in place have started to have an effect to the point where feedback from our auctioneers and from our agents is that there are quite a few properties being no bids and a number of properties being withdrawn from auction by auction day.”

The actions of regulators and banks to restrain property investment in Sydney and Melbourne have been formed amidst a lag in data, he said, reacting to what was seen in the rear vision mirror.

“We need to consider what is happening in the market place at the moment and what the combined impact of the measures will have – none of which will be apparent for some time to come.”

Market information obtained from REIA member agents in Sydney and Melbourne actually suggests that there are signs of a slowdown, he said. These indicators show a very different story to historical data which traditionally lags.

“We need to be careful that an overreaction to the investor-led Sydney and Melbourne property markets doesn’t threaten the health of the national economy.”

For instance, auction clearance rates only include properties that have gone to auction and ignore those withdrawn. As such, they are not a definitive barometer for the market, Gunning said.

“What we’re broadly seeing at the moment across Melbourne and Sydney is buyer resistance to price, less people through open houses. We’re not seeing rampant prices broadly. What this means is the market is starting to flatten out.”

These trends will not be included in the latest figures for three to six months, he said. This includes data from companies such as CoreLogic which rely on settled sale figures that take three months to collate.

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Rate rises real risk for mortgage holders

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COMMENTS

  • by DB 13/04/2017 9:25:28 AM

    Great article, but do you think the Government, APRA and ASIC are going to listen?? NO of course not!

  • by Uniquebdz 18/04/2017 9:05:37 AM

    I absolutely agree there is definitely a place for some interest only loans. If you are purchasing a property and have another liability that finishes in a year or two, then a 2 year int only loan can be appropriate. Or you want to do some work on your new property again for the first year or two. I think that the biggest issue is the behavior of some who put everyone into 5 year without a genuine need or reason, or high LVR loans. It is also important that the risks and costs are clearly communicated to the customer and these discussions documented. That way if a file is reviewed by the regulator it can be clearly identified the reason why IO is needed and the customer understands the costs.