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Lender crackdown could mean dire consequences for WA 01/04/2017

Last week the Reserve Bank of Australia’s (RBA) assistant governor made some concerning remarks regarding the potential need for regulators, including the RBA and the Australian Prudential Regulation Authority (APRA), to further tighten constraints on lenders to dampen an overheated housing market.

Last week the Reserve Bank of Australia’s (RBA) assistant governor made some concerning remarks regarding the potential need for regulators, including the RBA and the Australian Prudential Regulation Authority (APRA), to further tighten constraints on lenders to dampen an overheated housing market.

These comments were made in light of the continued strong growth in house prices in Sydney and Melbourne and the increasing levels of finance to investors that is occurring on the east coast.

The assistant governor’s opinion was reinforced by the RBA’s March meeting minutes, which raised concerns about what they perceive as a build-up of risk across the housing market due to a surge in investment borrowing and rapid house price gains in Sydney and Melbourne.

The reason I believe that these remarks are concerning, is that they reflect a very east coast centric view of the housing market and do not take into account the extremely different property market conditions that we are currently experiencing here in Western Australia.

If we look at the latest figures from the Australian Bureau of Statistics (ABS), while they show that Melbourne and Sydney experienced 10.8 per cent and 10.3 per cent growth in property values respectively during 2016. Here in Perth, the property price fell 4.1 per cent.

Recent land sales figures from UDIA also show that lot sales in the Perth Metropolitan Region were down 9.2% for the year to December 2016.

While the rate of decline has been slowing and we consider that the market is heading into a stabilisation phase, that stability and potential recovery could be severely compromised by introducing further restrictions to finance for potential home buyers.

UDIA has advised that any moves to further tighten lending conditions or dampen investor demand must be looked at in the context of individual, local market conditions.

Location specific measures are required in this situation, along with careful monitoring of their impact on individual markets.

The consequences of any measures implemented now are not just limited to the property market, as moves to curb demand for property could also do damage to the broader WA economy.

The property and construction industries have played a significant role in keeping our economy afloat during tough times in recent years and it is critical that decision makers take these volatile conditions into consideration and don’t jeopardise the whole economy.

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