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Investor demand to weaken in 2016: QBE

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.”

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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.

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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. 

Investor demand to weaken in 2016: QBE
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