Australian property prices to ease under new APRA rules

The explosion in property prices, which has headlined the Australian landscape for the past 12 to 18 months, could be about to halt, with the nation’s chief regulator applying the brakes on the amount home buyers can borrow.

A report in domain.com.au reveals the buffer, at which banks can lend money to potential borrowers to be able to meet their loan repayments if interest rates rose, has increased from 2.5 to 3 percentage points, following the announcement by the Australian Prudential Regulation Authority (APRA) last week.

Domain.com.au has calculated the move will reduce maximum borrowing capacity for the average person by around five per cent. APRA chair Wayne Byres said they were focused on ensuring banks were lending to borrowers who could afford the debt they were assuming, both now and in the future.

While a potential slow down in housing prices will be welcomed by those wishing to enter the overheated market, retirees who rely on rental income or high sale prices of their property may not be as supportive.

Across the country, home values rose more than 20 per cent in the past 12 months, figures many industry observers attribute to the global pandemic and locked borders. Australia’s somewhat manic housing boom is a far cry from early on during the pandemic when many predicted prices could fall. 

While most industry experts don’t believe house prices will actually drop under the new rules, it could be enough to stall the explosion of overinflated prices. Earlier this year, entrepreneur Dick Smith blamed immigration for Australia’s unaffordable housing.

Meanwhile, some Australians have responded to the inflamed market by downsizing into Tiny Houses.

But not all commentators are as optimistic high prices won’t continue to defy records. A report in The Guardian this week revealed the average home loan in Australia is now $750,000.

According to realestate.com.au, house hunters may be in for a long wait for the bubble to burst, with EG Advisory managing director and urban planner Shane Geha last week reiterating it’s a long game for housing hopefuls.

“Four months into the pandemic last year and most serious economists were saying that this year would see a recession and that property prices would collapse. I was one of the few predicting that property would actually go up by 30 per cent,” he said.

“The property market in Sydney in particular, and perhaps also in the other capital cities, will do another 10 per cent before the end of the year. So, you’ll actually end up with a 30 per cent plus year and none of those prices are going to regress based on the fundamentals that I see.”