RBA Minutes Reveals Less Lending to Investors as Residential Construction Eases

The Reserve Bank published the minutes of their board meeting on Tuesday, recording a plateau in residential construction and stable housing credit growth as the Australian economy expanded by 0.8 per cent in the June quarter. The Reserve Bank noted that Australia’s housing market conditions continued to ease in Sydney and Melbourne, but had been broadly unchanged in other cities. Housing prices continued to decline gradually in Perth, while prices around Australia increased by around 9 per cent over the year to September. Australian housing credit growth was relatively stable over 2017, with slowing growth in lending to investors offset by slightly higher growth in lending to owner-occupiers. Little change was recorded in Australian banks’ variable lending rates over September, although some banks had lowered interest rates on fixed-rate loans, with the largest declines for fixed-rate interest-only loans to investors. Regulators took measures this year to curtail riskier borrowing for housing -- such as the introduction of a 30 per cent cap for interest-only lending as a share of new lending by APRA early in 2017. This resulted in a substantial decline in interest-only lending, while the share of lending at loan-to-valuation ratios exceeding 90 per cent had also declined. [Related reading: Bank ‘Blacklists’: A Classic Case of Cutting Off the Nose to Spite the Face ] Australian banks continued to tighten their commercial property lending standards and their overall commercial property exposures had declined a little over the preceding year. This was offset by strong growth in the commercial property exposures of Asian banks in Australia. Unlike previous episodes of strong expansion in lending by foreign banks, this had not seemed to have led to an easing in lending standards by Australian banks. Australia&#x27;s residential construction suggested it had plateaued , with dwelling investment largely unchanged in the June quarter. The pipeline of work already approved or under way was expected to continue supporting dwelling investment around current levels over the subsequent year or so with the peak of apartment completions expected to occur during this period. [Related reading: What Will The Construction Downturn Actually Look Like? ] At the current level of dwelling investment, growth of the housing stock was expected to outstrip that of the population, as it had done in the preceding few years. Apartments stood out as a dwelling type growing in popularity, with a large number of apartments were expected to be completed in 2018 and 2019 in the largest cities, following several years of increasing apartment construction. Strong population growth had seen demand for inner-city apartments in Melbourne absorb the city’s large increase in supply. Generally, demand for smaller apartments targeted at foreign buyers in the major cities had eased. Prices and rents of inner-city apartments had fallen slightly in Brisbane and also in Perth, where economic conditions were weaker. The RBA Board left the cash rate unchanged at 1.5 per cent.

RBA Minutes Reveals Less Lending to Investors as Residential Construction Eases

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