Australian property may lose some of its appeal as an investment asset due to tighter regulations.
After stoking soaring house prices in Australia, property investors are being squeezed as the country’s biggest banks have tightened eligibility requirements, raised minimum deposits and increased rates on interest-only mortgages, reported Bloomberg.
Rates for interest-only mortgages, which is preferred by people acquiring homes to rent out or as an investment, have been raised to an average of 55 basis points this year, said Citigroup Inc.
Given the rising costs and slowing price growth, property could lose some of its appeal as an investment asset.
In the three months through July, price growth in Sydney slowed to 2.2 percent, down from its five percent peak earlier this year, according to CoreLogic. Melbourne, on the other hand, saw quarterly price growth ease to 4.2 percent.
Taku Ekanayake, for instance, has deferred plans to add a Melbourne apartment to his portfolio of six investment properties as the rising rates pushed his annual mortgage bill up by AU$14,400.
“With the rate hikes, I don’t think it is a very viable option for me to invest there now,” said the former IT salesman.
Savills Australia residential research head Sophie Chick said the restrictions “really made investors think twice”.
“We’ve already seen developers start to shift their efforts and focus more on owner-occupiers and less on investors.”
This comes as the changes reduced the ability of investors to pay, considering that they now have to pay “owner-occupier values rather than investor values”, said BIS Oxford Economics senior manager for residential property Angie Zigomanis.
And with the changes taking “some of the bubble and froth” out of the market, Zigomanis expects Sydney house prices to drop five percent by mid-2019.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email firstname.lastname@example.org