Banking regulator, APRA has given the clearest indication yet on what type of macro-prudential intervention will most likely be used to calm the surge of property investors in the Australian property market.
Speaking before the Senate Standing Committee on Economics last week, APRA’s chairman Wayne Byres said they would focus on encouraging sensible lending standards.
"We use the regulatory capital framework to create incentives for prudent lending and to ensure that while institutions remain free to decide their lending parameters, those undertaking higher risk activities do so with commensurately higher capital requirements," Byres said, according to the ABC.
This means that the most likely course of action may be to raise the requirements on how much capital a bank has to put aside for money loaned out.
The Reserve Bank has been in discussions with APRA over how to cool the rise of investors in the Australian property market – which the central bank said is causing the property market to become “unbalanced” – without hurting first home buyers or owner occupiers in the process.
But the route that the central bank and the banking regulator would take has been quite contentious in the industry. As previously reported in Australian Broker, Nick Proud, executive director of the Residential Development Council said that any caps to LVR could have perverse outcomes.
“Arbitrarily increasing lending measures runs the risk of shutting more first home owners out of the property market. Macro-prudential controls should only be introduced where there is systemic risk. The RBA
needs to be careful if changing borrowing practices applied to fix presumed problems in pricing in some localised mainland centres which may have an adverse impact on cities such as Hobart, Adelaide, Canberra and regional Australia,” he said.
But the banks haven’t welcomed any discussion around raising capital ratios, arguing that stricter capital rules shouldn’t have to apply to them, as Australian banks have shown more resilience in the face of economic downturn than European and US banks.
Whether or not the property market even requires policy intervention has also been questioned by some in the industry.
Dr Andrew Wilson, senior economist at the Domain Group says the market has been experiencing the lowest growth it has seen for some time, which may curb the need for the Reserve Bank to step in at all.
“Without a sustained revival in economic activity, housing markets will continue to soften, ending the debate about macro-prudential tools or changes to property taxation policy designed to offset local and foreign investor activity.”