APRA provides shot in the arm to housing market

The ailing housing and apartment markets will feel some reprieve from the scrapping of the limit on banks’ interest-only lending

Meriton sales director James Sialepis says the scrapping of the limit for banks to lend interest-only loans is encouraging. Picture: Ryan Osland

The country’s souring housing and apartment markets will feel some reprieve from the scrapping of the limit on banks’ interest-only lending in one of the first signals that the stranglehold on credit is being eased, property industry executives say.

James Sialepis, sales director of the country’s biggest private apartment builder Meriton, said 2018 had ranked as the toughest year since the global financial crisis with Meriton’s unit sales falling 20 per cent and the company cutting its construction workforce by 30 per cent.

“News that APRA (the Australian Prudential Regulation Authority) will remove interest-only lending caps is long overdue, especially in the off-the-plan apartment market where more than half of presale purchasers are investors,” Mr Sialepis said.

“Without these investors precommitting, most developments just won’t start.”

The cap — a temporary measure aimed at cooling the overheated housing markets — was introduced in March 2017, with the regulator requiring banks to limit interest-only lending to 30 per cent of new loans.

Yesterday, APRA said interest-only lending had halved since the limit was brought in.

The housing and new apartment market has been hit in the wake of tighter bank-lending restrictions, the impact of the banking royal commission and launch of foreign buyers taxes as the building boom peaked.

Sydney and Melbourne’s once white-hot housing market has seen the biggest correction, with Sydney housing prices falling 8 per cent over the past year and values across the capital cities down 6 per cent from national market peak in July last year.

APRA’s removal of the ­interest-only lending cap was an acknowledgment that the weakening housing market might threaten the broader economy, Ernst & Young Sydney managing partner Andrew Price said.

“Some would argue that over-regulation was stifling the proper functioning of the housing market, while reducing consumer choice. Investors have vacated the housing market, placing some new developments at considerable risk,” he said.

Housing Industry Association principal economist Tim Reardon said credit growth across the market was at its lowest since the 1983 recession.

“APRA’s restrictions were designed to curb high-risk lending … Over the past 12 months, ordinary home buyers have experienced significant constraints in accessing the appropriate level of finance,” Mr Reardon said.