Murray says regulators must rein in investor lending

by Miklos Bolza14 Feb 2017
Australia’s regulators have been criticised for failing to curb the rapid growth in investment lending and avoiding instability in the property market.

In an interview with The Australian, David Murray, who is chair of the Financial System Inquiry, said that the 10% limit to the growth of investment loans by the Australian Prudential Regulation Authority (APRA) was not having a significant enough effect.

Interest cuts by the Reserve Bank of Australia (RBA) last year also played a role in the surge in lending to property investors.

While APRA chairman Wayne Byres confirmed the regulator’s commitment to the 10% speed limit on investment lending, Murray said that the rate was too generous.

Up until September 2015, investor lending was growing at a rate of more than 10%. Although this slowed down to 4.5% in August last year after the APRA crackdown, it has gradually increased and has since reached 6.2% year-on-year.

However, data from December last year showed an annualised rate of 10.1% for the rise in investment lending, edging this above APRA’s speed limit.

“It seems no doubt that activity in the market is still strong,” Murray said.

“APRA and the Reserve Bank should consider doing more on investment housing. I don’t think it’s entirely healthy,” Mr Murray said.

He said it was worrying that both house prices and household debt levels are incredibly high.

“It presents a future risk to the economy, so I’d be in favour of more being done.”

Investor loans currently account for 40% of all lending. In its Statement on Monetary Policy released Friday (10 February), the RBA warned that an oversupply of apartments could push down property prices in the future.

“If there are more investors in the market and the market softens, you’re more likely to have forced sales in the market – there’s less stability in this kind of market,” Murray said.

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COMMENTS

  • by sigh... 14/02/2017 9:06:04 AM

    Another academic who knows better than the free market..........seems to be a lot of them these days

  • by JB 14/02/2017 11:25:36 AM

    An investor by definition is looking for return and is usually reasonably well informed. Once returns fall below acceptable, investors will sell or move to areas where returns are better. Given that First Home Buyers have left the market, little wonder investor share of loans increases to take up the slack and provide rental accommodation. Instead of meddling in the market on the assumption that investors are so stupid as to buy overpriced stock in vast numbers and then flood the market when there is no rental demand, policy measures should be addressing the difficulties of owner occupiers attempting to enter the market. Investor lending should be left to the free market to find it's own level, stop fixing an imagined crisis.