While there have been many scare stories and misinformation circulated regarding the Australian real estate market cold hard facts tend to speak louder to investors. Therefore a reduction of 6.1% in the number of home loan approvals in May, compared to the same period last year, does not bode well for the short term. This could be a pivotal moment in the short to medium term future of the Australian property market although there is more to take into consideration than just cold hard facts.
Tighter lending criteria
In common with an array of other developed countries around the world, including the UK, the Australian mortgage market has undergone a significant change of late. Many of the larger banks are now reducing their exposure to new property investors and loan to value ratios have been reduced. In simple terms, the average property investor in Australia at the moment will require a minimum 20% deposit before they are able to apply for a bank loan.
It is no surprise to see this particular move occurring after such a prolonged period of growth within the Australian property market and all the scare stories which have followed. What may be a surprise is that it has taken the banks so long to “slow down investor lending” and effectively reduce their exposure to the Australian property market going forward.
While many experts have been left with “egg on their face” trying to predict the short to medium term direction of the Australian property market, perhaps Reserve Bank of Australia senior research manager Peter Tulip is in line for some flak. Just a short while ago he suggested that Australian house prices were undervalued by up to 30% at a time when many experts were thinking the exact opposite.
It is worth noting that it does take different views to make a market although an undervaluation in the region of 30% after a prolonged period of growth seems ambitious to say the least. However, it is also worth noting that nobody is predicting a collapse in property prices across Australia although some of the “hotspots” such as Sydney could feel a little more pain than others in the short term.
Is consolidation such a bad thing?
If, as some experts believe, we will see a slight consolidation in the Australian real estate market in the short to medium term is this really such a bad thing? In many ways, assuming the trend continues, the mortgage lenders and regulators seem to have managed to deflate the house price bubble in a relatively controlled manner. This is something which few politicians, regulators and investors around the world have been able to do in other markets without causing panic and fear.
Even if the Australian property market were to take a breather in the short to medium term it is worth highlighting the significant increase in valuations over the last decade. This is a country which avoided dipping into recession despite the fact that the world wide economy effectively collapsed back in 2008. So, maybe it has not been a bad decade or two for Australian real estate investors?