Major residential developers including Mirvac and Stockland have endorsed the latest efforts to curb risky home lending which, they say, will strengthen the financial system without crimping their sales.
Among new measures unveiled by the Australian Prudential Regulation Authority last week is a limit on the flow of new interest-only lending to 30 per cent of total new residential mortgage lending.
That is expected to have most impact on investors, who favour interest-only loans because they allow for larger tax concessions through negative gearing.
While agreeing they had exposure to the investor market, the largest developers sought to play down the effect of the curbs on their business.
Diversified developer and investor Mirvac, which achieved a record $3.1 billion in pre-sales for the first half of the year, ultimately sells around one-quarter of its output – both from apartments and housing estates – to investors.
Managing director Susan Lloyd-Hurwitz said the most likely effect of the new measures was to deter marginal buyers from the market at a time when the prospect of interest rate rises loomed.
“Measures that help deter the marginal buyer who possibly shouldn’t be buying, we totally welcome that,” she told The Australian Financial Review.
“The marginal buyer I’m talking about is the person who can only afford to service the loan because it is interest only.”
Ms Lloyd-Hurwitz, who is also Property Council of Australia president, said about 47 per cent of Mirvac’s pre-sales – slanted towards apartments – went to owner-occupiers.
A proportion of the remaining pre-sales that went to investors could include interest-only buyers but it would be “by no means significant,” she said.
“We don’t generally have inferior-quality investor-grade stock, which is where the interest-only loans are concentrated.”
Those sentiments were echoed by Stockland, which sells about 75 per cent of its residential land and completed homes to owner-occupiers.
Andrew Whitson, who heads Stockland’s residential communities business, said the tighter controls might dissuade some short-term property investors “at the margin” but would not affect investors with the required equity and cash flow.
“We don’t foresee the tightening prudential controls having any material impact on our sales volumes,” he said.
Harry Triguboff, the founder of developer Meriton Group and Australia’s richest person, said his sales – about half of which were to investors – would be affected.
“I’m affected by everything,” Mr Triguboff told the Financial Review. “I just adjust to whatever comes.”
SQM Research’s Louis Christopher said APRA’s actions would have no effect on runaway price growth in Sydney and Melbourne.
“It’s weak. This is not going to be enough to slow down the Sydney and Melbourne housing boom. The boom continues if this is all it is,” Mr Christopher said
SQM Research is predicting Sydney prices will rise between 11 per cent and 16 per cent in 2017, while Melbourne gains between 10 per cent to 15 per cent.
Those forecasts were made in November and had taken into account a potential tightening by APRA.
The forecasts are now at the upper end of that range, Mr Christopher said, but APRA’s move was “not aggressive enough” for SQM to revise its predictions.
“They [APRA] may well come back to market again,” he said. “There will more political pressure and community pressure for APRA and the banks to do something more. We may well still see an additional move in the second half of this year.”