APRA should reign in lending
The Reserve Bank of Australia (RBA) will require the Australian Prudential Regulation Authority (APRA) to reign in home lending once again, or the RBA will have to lift interest rates, or do both to avoid a dangerous housing bubble, according to SQM Research.
SQM managing director, Louis Christopher, said the housing market was at its second most overvalued point at present, and said Sydney and Melbourne house prices would spike from an elevated valuation point due to a combination of factors such as loose monetary policy, strong population growth, and booming local economies.
Assuming a stable interest rate environment, stable exchange rate, and no further home lending restrictions by APRA, SQM Research predicted Sydney dwelling prices would increase by 11 per cent to 16 per cent for the 2017 calendar year, while Melbourne was forecast to rise by 10 per cent to 15 per cent. The capital city average for dwelling prices was predicted to rise by six to 10 per cent.
However, if lending rates were cut again, Sydney and Melbourne prices could rise by 18 per cent, the firm predicted. Christopher said overvalued markets in the two cities at the end of 2017 could see a correction in 2018.
"The problem this time round is tapping on APRA's shoulders once again could be a little more complicated as it will need to involve restricting owner occupied credit growth — something which the banks will be more reluctant to do.
"And given the recent announcement of the seven per cent interest rate servicing test, APRA may well feel reluctant to take further action."
AUTHOR
Malavika Santhebennur
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
The alternative asset manager has expanded its Singapore office with a head of Asian distribution, representing a “critical step” for the Asian business, where it is seeking to launch new offerings.
