Australia’s corporate watchdog targets soaring home prices
Australian home prices hit new records while building approvals jumped the most in seven months, latest data out on Monday showed, even as regulators launched new measures to cool the red-hot property market.
Australia’s corporate watchdog said on Monday it was introducing a new round of industry surveillance to ensure banks and brokers were not recommending overly expensive interest-only loans to customers.
The move by the Australian Securities and Investments Commission (ASIC) follows steps announced last week by the banking watchdog to tighten rules on interest-only loans, which investors favour.
The measures highlight the pressure that Australian regulators are under to cool sizzling property prices as record low interest rates lead households into a debt binge.
The surge in property prices has also boxed the Reserve Bank of Australia (RBA) into a corner.
“The RBA can’t cut rates for fear of further fuelling an overblown housing market, and the RBA can’t hike rates due to fear of depressing an already tepid domestic economy,” said Matthew Peter, chief economist at Brisbane-based QIC, which has A$74 billion in assets under management.
The RBA left interest rates on hold for a seventh straight month in March. All 50 economists polled by Reuters forecast the RBA would keep interest rates steady when it meets on Tuesday.
Monday’s data from property consultant CoreLogic showed home values in Sydney jumped an annual 18.9 percent while those in Melbourne surged 15.9 percent. Canberra and Hobart were also racing at 12.8 percent and 10.2 percent respectively.
In a welcome sign, approvals to build new homes climbed 8.3 percent, the most since last July, data from the Australian Bureau of Statistics (ABS) showed.
Multi-unit approvals gained 11 percent, pointing to a healthy pipeline of construction for the year ahead.
Also adding fuel to Australia’s biggest-ever home construction boom, the value of total building approved soared nearly 20 percent, with non-residential leaping 34.5 percent.
Some economists expect home prices to temper as supply catches up with demand.
“Investors need to be aware of the risks, including recent actions by regulators to slow housing demand,” said Savanth Sebastian, senior economist at CommSec.
Already, banks have jacked up mortgage rates on interest-only loans – popular with property speculators.
Variable interest rates on investor loans from Commonwealth Bank of Australia – the country’s top mortgage lender – are as high as 5.94 percent, compared with 5.25 percent for owner occupiers and an official cash rate of 1.5 percent.
ASIC said on Monday that eight major lenders will provide remediation to consumers who suffer financial difficulty as a result of shortcomings in past lending practices.
“We can expect lending conditions for investment purposes will tighten,” said CoreLogic head of research Tim Lawless.
“Additionally, higher mortgage rates handed down by Australia’s major banks may contribute towards cooling some of the exuberance being seen in the largest capital city housing markets.”
Meanwhile, retail sales unexpectedly fell in February, adding to growing evidence that debt-laden households were tightening their purse strings.
Monday’s data showed sales were down 0.1 percent when economists were hoping for a 0.3 percent gain. That fall, plus record low wages growth, a lacklustre job market and core inflation below the RBA’s target band of 2-3 percent, all argue against a rise in official rates.