Investors are sidelined. Who’s going to step into the breach?
It’s a tough credit environment at the moment.
I’ve seen tougher, but then I’ve been around for a long time. If you’re new to the game, you might be wondering what’s going on.
Two years ago, banks were falling over themselves to throw money at you. Now, they don’t want to know you.
People are a little freaked that this is going to cause the market to ‘collapse’, but I think this misses the point.
The credit restrictions, introduced into the system via APRA, are deliberate friction. They’re sand in the gears of the market.
But the market fundamentals haven’t changed. People want to borrow, banks want to lend.
And once the sand has worked through the system, those fundamentals will reassert themselves. We’ll pick up where we left off. Maybe with cooler heads perhaps, and that will be a good thing.
The other point I’d make is that so far, it seems that the restrictions are squarely aimed at investors.
Investors are getting the “It’s not you, it’s me” talk from their banks, and then going out the next day to see their bank walking hand in hand with some floozy owner-occupier.
“I really thought he could change!”
And it’s one of the hidden stories in all of this. While investor lending is slowing, first-home owner lending is actually booming.
In NSW, first home buyer finance commitments are up 80% year on year!
While in Victoria, FHB finance is up an also-thumping 45% year on year.
These are some seriously huge numbers.
(Of course you don’t hear APRA stressing about the irrational surge in first home buying – even though the data shows that FHBs tend to be in much more precarious financial situations than investors… but that’s another story.)
The point is, that while investor lending is slowing, owner-occupier lending, particularly to first home buyers, is picking up the slack.
In part, I think this has got a bit to do with simply how the data are recorded.
I mean, we know for example that in recent times, many first home buyers have entered the market, not with a house for themselves, but with an investment property.
Some data showed that in Sydney, for every first-time buyer, there was a first time investor.
So you can bet that these first home investors no longer have any incentive to label themselves as investors – not with APRA gunning for investors.
They’re going to come back across the line and say, actually, we’re owner-occupiers.
(And who knows what the actual truth is.)
So some of the boom in first home buying may just be column jumping.
But I’m willing to bet that a good chunk of it is real. Remember that we’ve had some pretty heft first home buyer bribes in NSW and Victoria come into effect this year.
In Victoria, they scrapped stamp duties on properties up to $600K.
And then this week, the Federal government introduced legislation that allows first home buyers to dip into their super. From the SBS:
The coalition used its numbers in parliament’s lower house to pass the measure – announced in the May budget – on Wednesday.
The legislation also allows older Australians to contribute the proceeds of the sale of their family home to their super.
Labor and the Greens are against the proposal, with the opposition claiming it will do nothing to address housing affordability.
Shadow treasurer Chris Bowen argues it will instead work to undermine the country’s superannuation system, labelling it a “sham”.
Assistant minister to the treasurer, Michael Sukkar, accused Labor of deliberately peddling misconceptions about the scheme…
“It’s quite shocking and surprising to see any political party take a view that a tax cut for first home buyers is something that they cannot support,” Mr Sukkar said.
I don’t imagine this is going to be huge. But add it to the bribes in Victoria and New South Wales, and it’s adding up to something substantial.
First home buyers are now a force to be reckoned with.
And as people wait for this energizer boom (it just keeps going and going) to run out of puff, the baton has passed from investors to first home buyers.
(For now. Investors will be back.)
If there’s a strategy here, it may be to look at entry-level properties. That will be the first market segment where these grants will be felt.
But money into the system is money into the system – regardless of where it lands. People selling out of entry-level properties buy into the tier above.
A rising tide lifts all boats.
The Australian property market is a beast with more than one engine. Back one off and another takes up the slack. That is how it seems to work.
Seen it before, see it again.
Noticing any impact in the entry-level segment?
