Latest ABS home loan data for June has revealed another sharp increase in finance approved for residential investment in Australia. The value of investment loans soared to $15.3bn over the month which was another monthly record following the previous high watermark set in May 2015.
The stunning June result was 5.0 percent higher than May with investor finance increasing by 24.8 percent over the 2014-15 financial year compared to 2013-14. The value of loans approved to investors over the first 6 months of this year is now 27 percent higher than the amount approved over the first 6 months of last year.
The loan market share for investors now stands at 54.1 percent over June, just below the all-time record of 54.2 percent set in May.
Banks have moved recently to increase lending rates to investors, for both existing and new loans, at the direction of the regulatory body, APRA. Increased mortgage rates for investor loans are designed to quell demand in this strong market sector. Although it is early days in this policy shift, there is no sign of any easing in the runaway train that is Australia’s residential investment market.
It remains unlikely given relatively high yields, the prospects of continued capital growth and the taxation advantages and investment benefits that residential investors enjoy, that the recent increase in rates will cause a significant decline in activity particularly in the still strong Sydney and Melbourne housing markets. Moreover, a fall in residential investment would certainly not be welcomed by the majority of capital city markets that continue to report modest housing market activity and associated economic benefits.
Dr Andrew Wilson is senior economist for the Domain Group