QBE has outlined the impact that investor demand will have on Australian residential property markets over the next 12 months.
In its Housing Outlook 2015-2018, released yesterday, QBE noted that investors have become the dominant force in the market, accounting for 50 per cent of total residential finance in 2014-15, compared with the average of 41 per cent over the 15 years to 2014-15.
Despite this figure, the report showed growth in investment lending is likely to weaken over 2016 in response to APRA guidelines, interest rate buffers and tightened loan-to-value ratios.
“This is anticipated to lead to softer demand from investors, with APRA expressing a preference for financial institutions to contain annual portfolio growth in investment lending to below a 10 per cent threshold,” the report said.
“The removal of the most marginal and highly geared investors from the market is likely to alleviate some of the demand pressures on prices.”
The report indicated that this will have a negative effect on residential building activity over the next 12 months.
“Multi-residential construction is dependent on investors to underwrite pre-sales, and the prospect of a lower loan-to-value ratio – and therefore higher deposit – may discourage some investors.
“Furthermore, there is a risk that some investors may not settle purchases of units bought off-the-plan due to the higher than anticipated equity contribution and/or increased interest rates.
“The potential for a higher level of sales not proceeding may result in financial institutions applying more onerous pre-sale requirements before agreeing to finance construction,” the report said.
On a state-by-state basis, New South Wales recorded the strongest growth in residential investment over 2014-15, rising by 32 per cent to $65 billion on the previous year.
This was followed by Tasmania at +30 per cent, Victoria at +24 per cent, Queensland at +18 per cent and South Australia at +13 per cent.