As almost all investors would be aware of, the past few years have given Australian property investors unprecedented returns. Anyone who currently owns a property has likely seen it go up in value over the past year, and by quite a large margin too.
But with years of double-digit growth rates under the belt, many investors are wondering where to from here? Well, one ASX CEO has a fairly decisive view about what will, or should, happen next.
According to recent reporting in the Australian Financial Review (AFR), CEO of National Australia Bank Ltd (ASX: NAB) Ross McEwan has told investors that "we can't afford" property prices to keep going up, lest we find ourselves in a similar house price crisis:
We cannot see another 20 per cent house price growth over the next 12 months. We cannot afford to have that happen in the Australian marketplace.
NAB CEO says 'we can't afford houses to keep rising'
The report finds that Sydney property prices have risen by a staggering 25% over just the past 12 months, mostly due to interest rates being at the record low of 0.1%. But Mr McEwan doesn't think lifting rates is the answer to cooling the property market. He backs the Reserve Bank of Australia's decision not to raise rates until economic conditions improve and wage growth picks up.
Instead, McEwan reckons the "fairest and most effective way" to pump the housing market brakes is for the Australian Prudential Regulation Authority (APRA) to "double the rise in the serviceability buffer" for new loans.
The serviceability buffer is the gap between the mortgage interest rate a property owner is offered on their loan and a predetermined 'buffer' that the bank uses to assess the lendee's ability to service the loan should rates rise.
On 31 October, APRA raised this buffer to 3%, meaning that if a customer gets a mortgage at an interest rate of 2%, the bank will assess their ability to service the loan at a 5% interest rate.
"They could always move that again," Mr McEwan said of the serviceability buffer. "My view, and discussions with the regulator, have been that it is the simplest way to have an impact."
So it seems Mr McEwan is cheering on a fall in house prices. That might make him both very popular and very unpopular with different demographics of Australian society.
