Property prices not APRA’s problem, says Byres

In a speech at the CEDA 2017 NSW Property Market Outlook event in Sydney on Friday, Mr Byres said APRA’s key objective was “making sure that standards for property lending are prudent, particularly in an environment of heightened risk.”

Rising property prices in Sydney and Melbourne have often been linked to regulatory measures introduced by APRA in 2014, and again earlier this year. Mr Byres explained that while the banking system is heavily exposed to property market cycles, APRA’s goal is to ensure the system can readily withstand those cycles without undue stress.

“I want to emphasise that we are not setting out to control prices,” Mr Byres said.

“Property prices will go up and they will go down (even for Sydney residential property!). It is not our job to stop them doing either of those things. Rather, our goal is to make sure that whichever way prices are moving at any particular point in time in any particular location, prudentially-regulated lenders are alert to the property cycle and making sound lending decisions. That is the best way to safeguard bank depositors and the stability of the financial system,” he said.

Non-bank lenders have largely been the beneficiary of APRA’s efforts to limit investor lending. Mr Byres made reference to this in his speech, highlighting that there are “credit providers beyond APRA’s remit” and that “a tightening in one credit channel may just see the business flow to other providers anyway.”

Prior to APRA’s actions earlier this year, which saw the introduction of a 30 per cent cap on interest-only loans as a proportion of new lending by the banks, economists and market commentators speculated that the regulator would reduce its 10 per cent growth cap on investor lending.

AMP Capital chief economist Shane Oliver repeatedly suggested that APRA might lower the limit to 6 per cent, for example, particularly after a resurgence in investor lending over the last six months of 2016.

But according to Mr Byres, the reason for keeping the 10 per cent speed limit in place lies in risks within the residential development market.

“There is a fairly large pipeline of residential construction to be absorbed over the course of 2017, and there is little to be gained from unduly constricting that at this point in time,” he said.

APRA undertook a thematic review of commercial property lending in 2016 and found “clear evidence” of “an erosion in standards” due to competitive pressures.

Mr Byres noted that lenders were found to be justifying a particular underwriting decision not on their own risk appetites and policies, but based on what they understood to be the criteria applied by a competitor.

[Related: Mortgage lending on APRA radar amid 'heightened risks']