Limiting investor spending is good for the market
In this column by Grant Harrod, LJ Hooker’s CEO and Managing Director argues the crackdown on speculative investor lending can only be good for the property market.
The pressure placed on banks by Australian Prudential Regulation Authority (APRA), to curb lending to investors, will ultimately create a more stable market and lessen any risk posed by speculative buyers.
It is hoped that the changes will also take some heat out of sections of the Sydney and Melbourne property markets.
We are not expecting it will create a big difference as population growth and an undersupply of homes should keep buyer demand in both markets strong.
Property remains a much more stable and secure investment than other assets.
And, because of this, investors have come to residential real estate significantly in the past couple of years, probably to the detriment of the equities market.
Many are sophisticated and more in tune with the market than in the past because they are now able to undertake research or re-engage real estate agents who are now` better informed on valuation and yields.
As long as they stay wary of speculative markets and stick with more stable markets where they can buy with a degree of confidence.
While nothing is without risks, Sydney, Melbourne, Perth, Brisbane and Adelaide are unlikely to see a dramatic increase in rental vacancies.
The reality is that people have to live somewhere and there remains a fundamental shortage in the major markets of properties versus population growth.
Investing in property offers a lower risk in comparison to other asset classes.
In the background, however, banks are beginning to lower their valuations to avoid excessive speculation with demand for property being strong.
Investors are typically unemotional when buying assets; while owner-occupiers are buying a lifestyle.
You have to be very careful when creating a property portfolio that you are in line with the value of the asset as determined by market and the banks.
Typically investors will retract if there is talk around prices coming back or valuations being different to the market. They are rationale investors focused on yields and capital growth.
The good news is most are well covered.
Even significant movement wouldn’t be enough to cause the sudden flow of distressed properties coming into the market.
Most properties are not excessively geared and as long as they have income, investors will ride out any lows.