Developers bracing for property hit under APRA’s new lending rules

APRA’s new lending curbs will make it tougher for marginal borrowers to get housing loans.

Andrew Whitson, chief executive of communities at Stockland, said APRA’s intervention was ‘reasonable’. Picture: James Croucher

Big listed property developers could be slugged by tough new rules seeking to tighten up lending but most either sell to owner-occupiers or operate at the more pricey end of the residential property market that is unlikely to be hit.

The pain is expected to fall on smaller private operators that are more dependent on pre-sales to low income buyers and seeking to entice highly leveraged borrowers to commit to projects.

Major property stocks avoided a sell down when the rules were unveiled with both Stockland and Mirvac holding steady on Wednesday, although some concerns loom once the boom in sales fades.

Stockland, chief executive, communities, Andrew Whitson, who runs the country’s largest listed residential business, dubbed the prudential regulator’s intervention reasonable.

“The buffer announced by Australian Prudential Regulation Authority is a reasonable measure given the record low mortgage rates. We expect the move will moderate demand at the margin and, like most prudential measures, it will take a few months for its effect to be realised,” he said.

“Macroprudential measures are important, but housing supply remains a significant lever impacting the availability and affordability of housing. New housing stock is more affordable for first home buyers and drives economic growth for our nation,” Mr Whitson said.

APRA’s move to increase the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications was received with “caution” by peak developer body the Urban Development Institute of Australia.

The body warned regulators against “taking a heavy stick to credit availability and not to put at risk the economic recovery from the pandemic”. It cited the negative effect of pushing people out of home ownership, particularly as recent evidence of tightening also showed it had only a very small impact on stabilising house prices.

The group warned that prior efforts to curb perceived risks in lending practices had the effect of substantially stalling the availability of finance for new projects, stifling supply with a negative impact to affordability.

“An alternative approach would be to increase bank’s equity requirements to ensure financial stability instead,” the body said.

The Housing Industry Association also warned about the impact on credit availability and on first home buyers.

“Over 90 per cent of renters aspire to own their own home but less than half of them expect that they will ever achieve this goal. Today’s announcement by APRA will make this goal even harder,” HIA chief economist, Tim Reardon, said.

“First home buyers accounted for 35 per cent of owner occupier loans issued in August and these measures will make it harder to access a loan,” he said.

A Mirvac spokeswoman said the changes to interest rate buffers announced by APRA were a “prudent and measured approach”.

“Any new measures should be carefully considered to not adversely impact on new housing supply and affordability. It is critical that the housing sector continues to play a pivotal role in creating new jobs and driving our nation’s economic recovery,” he said.

Brokers said the impact was yet to be fully realised.

“While APRA believe the impacts of the announcement will be ‘modest’, it is difficult at this stage to ascertain the impacts for the developers, albeit directionally it is a negative, with a key unknown being the impact such changes may have on broader housing confidence,” Macquarie’s property analysts said.

A potential offsetting factor is the strength of demand, particularly in land markets, which is outstripping supply and leading to quick sell out of releases, they said.

Originally published as Developers bracing for property hit under APRA’s new lending rules