Property investors are leaving the market

Loans to property investors fell in October by 6% – another sign house prices are under pressure

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published December 9, 2015 3:37 pm AEDT

Yet more evidence that Australia's property market is headed for a fall – lending to property investors fell 6.1% in October, with owner-occupied approvals rising 0.4%, according to today's data from the Australian Bureau of Statistics (ABS)

The total value of housing finance was also down 2% for the month of October, compared to September, but the falloff in investor lending is very noticeable as this chart demonstrates.

Macquarie's head of Australian economics James McIntyre has told Fairfax Media that the value of loans approved to investors is now the weakest since June 2014. Mr McIntyre says investor participation has dropped close to 15%, since peaking in April.

That's all thanks to the banking regulator, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia. APRA warned the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) about allowing investor lending to rise more than 10% each month, as it threatened to get out of control.

The banks responded with higher deposit requirements and raised interest rates on investor property loans above that of owner-occupiers. Clearly, investors have been discouraged from the property market – and it's working.

The only problem is that the withdrawal of many investors from the market is pushing house prices and auction clearance rates down. Home sellers will have to adjust to the new reality, which is lower prices than they may have expected.

Foolish takeaway

You could reasonably expect property prices to fall moderately from here – like they did in 2011 and 2008/09 when Sydney's median house prices fell 14.5% and 13.9% respectively. Low-interest rates could act as a base to prevent property prices from crashing – subject to no external shocks.

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