SQM Research principal Louis Christopher says APRA’s recent action to curb investor lending simply “isn’t working” and has been “ineffective”, predicting the regulator will need to resort to a plan B.
“Since the announcement by the major banks of new restrictions four weeks ago, clearance rates have stayed above 80 per cent in Sydney and 75 per cent in Melbourne – this is hardly slowdown territory,” Mr Christopher said.
“On top of this I am having a strong sense that listings have fallen again from the levels in May. Once APRA are convinced that their existing efforts to slow the market have failed, they will likely turn the screws again.”
Mr Christopher said the regulator is likely to take action on a “second phase” before Christmas, suggesting it is likely to take inspiration from recent decisions taken across the Tasman.
“My thinking is that APRA will increasingly follow the recent action by the Reserve Bank of New Zealand (RBNZ) and focus putting LVR limits specifically on Sydney real estate investors,” he said.
“The RBNZ are now targeting specific areas where there is evidence of a bubble; that being Auckland where house prices have risen substantially.”
While APRA may consider simply placing tougher restrictions on the banks and get “overall investment lending credit growth back under 10 per cent per annum”, the researcher advised this was not the best idea.
“The risk with this approach is you unnecessarily slow down investor appetite across the country,” he said.
“This would not be a desired outcome for the RBA who have stated previously that they are relying on housing construction and I believe the “feel good” factor that is associated with rising house prices to keep the other parts of the economy from stalling.”
Mr Christopher added that the ability for APRA to have sway over banks’ decision-making “remains to be seen”.