Special report: APRA changes to meet with mixed success
The jury is out on whether APRA-instigated changes to investor lending will influence market values, but if they do, Smart Property Investment’s panel of property experts warn investors to expect mixed results.
Property professionals predict that new apartment stock and house-and-land packages are set to be the hardest hit by changes to lender borrowing, but existing houses in established suburbs are unlikely to be affected.
Rachel Mangalon, director of Ace Lending Solutions, is sceptical of the lending changes’ ability to cool the market.
“The market is definitely heated and something has to be done to slow it down, but I don’t know whether getting involved with percentages and LVRs and stuff like that is going to be enough of a slowdown."
Assessing the effectiveness of any changes will also largely depend upon the method of analysis used, she said, citing the nature of lending enquiries her office has fielded in 2015.
“I think it’s going to depend on where the statistics are taken from – if it’s based purely on sales versus lending then maybe not.
“I think that’s a simple solution, statistically the majority of the lending that we’ve done this year has been refinancing and top-ups, not new property purchases so I don’t know whether the heat in the lending market as such is from property purchases – whether that’s the main driver,” she added.
It’s a sentiment echoed by Jason Back, managing director at the Australian Lending and Investment Centre.
He believes that for any pricing impact to be felt, market intervention will need to stem far beyond investor lending.
“I don’t necessarily see prices being impacted by the prudential overlays they’re putting in place at the moment. So that’s one of the challenges.
“Lending is only one part of that equation, there are still a number of investors out there using equity and cash to purchase property so if this pricing of housing is to be reduced, it’s not just going to be solved by this prudential overlay,” he said.
He did, however, predict that house-and-land packages, which are already struggling to meet buyer expectations, will take a further dip following the changes.
“We’re certainly concerned about the oversupply in that area and the quality of the underlying asset. Some of the house-and-land packages at the moment, I think, are starting to struggle when it comes to valuations.
“I think what you’ll find is there has been increased prices on these properties so they’re selling for high prices but there’s no ... increased value. So a lot of the house-and-land packages are now coming in under-value when they’ve been heading towards settlement so that you’ve got to keep a close eye on that market,” he said.
Cate Bakos, director of Cate Bakos Property, believes that apartment stock in all capital cities will take a major hit to values following the changes.
“Obviously it will minimise the number of investors will have a knock on effect in the investment grade stock, namely apartments, and I think that will have an impact in all of our major capital cities where we'll have more stock to choose from because there'll be less movement and less buyers.
“It could have an impact on price in terms of not necessarily adversely affecting unit prices but it will adversely affect the rates of growth that units have been experiencing so maybe the differential between house prices and unit prices will become quite a lot more noticeable, even more so that it already is,” she said.
Ross Le Quesne, owner of Aussie Parramatta, also believes that the changes will have a clear impact on market values.
“I definitely think that it will have the desired effect and I think they will continue to implement changes until they see it flow off.
“I don’t have a crystal ball, I definitely don’t think we’re in a bubble and I don’t think it’s going to burst, but I wouldn’t be surprised if the market came off 5 to 10 per cent of its peak at the time when it happens,” he predicted.
Momentum Wealth managing director Damian Collins believes that while Sydney and Melbourne will likely take a hit following the changes, an undersupply of established property in Sydney means the impact of the changes will be vary in severity.
“I think again it will have the biggest impact where investors were most active and that was in Sydney first and Melbourne second. It will have a smaller effect on prices in Brisbane in the medium level, in Perth and Darwin it will have a moderate impact but investors weren’t that much in the market anyway.
“There’s still a shortage of homes in Sydney so that will probably chug along okay particularly if there’s owner occupiers competing for those as well, but anything particularly targeted to investors in Sydney I’m expecting will see a pretty reasonable drop off over the next 6 months in terms of investor demand,” he said.
APRA Special Report:
Special report: APRA tries to take the heat out of the market
Special report: first-time investors hit the hardest
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