04 Dec What is causing the slowdown? – Andrew Mirams
The housing markets around the country are moderating so have the APRA interventions been the cause or are there more compelling underlying reasons. Andrew Mirams gives us his view.
Kevin: We continue to see the housing market moderate around Australia, so I wonder, given that we’re talking here about investors whether APRA’s intervention has actually had the desired effect. Andrew Mirams from Intuitive Finance joins me.
Good day, Andrew. How are you doing?
Andrew: I’m doing really well, Kevin, thank you, and you?
Kevin: Good, mate. So, this screwing down by APRA, is that what’s happening here? Is that what we’re seeing?
Andrew: Oh, that’s an affectionate term, Kevin, “screwing down.”
Kevin: I look at it as like tightening the screw down on this a bit.
Andrew: Yes, very good. They’ve largely achieved what they’ve wanted to achieve, and to the point that even Wayne Byres, the chairman of APRA, came out a couple of weeks ago saying that the whole ideology behind it was a temporary measure, just to make sure that investors weren’t getting out of check, as they probably were in Melbourne and Sydney predominantly, and they just needed to regulate markets to make sure we have a balanced housing market and to make sure that first-home buyers did have opportunities to buy in the market where the investors, in Sydney in particular, were really running ahead and making it hard for people to just get into the market.
I think what they’ve been able to do is limit loan-to-value ratios – what we call LVRs – to investors, not putting much in. They’ve been able to reduce some interest-only lending and the potential that when people come out of their interest-only loans that they won’t be exposed and unaffordable in terms of their new rates and their new rate payments that they’re going to be up for.
So, yes, a lot of their measures have absolutely had the desired effect. We’re not seeing the markets just moderate, which is, for all property investors, a good thing. None of us want boom-bust cycles, Kevin.
Kevin: Are we likely to see more toughening measures from APRA?
Andrew: I think they’re quite comfortable, now that we’re seeing actual signs in the marketplace of the markets moderating. I believe that they’ll just sit and watch. I still think – and we’ve spoken about this before – that a little bit of work about the people’s living expenses and just doing really due diligence and analysis around what people are actually spending and what’s going in and out of bank accounts, I still think there might be a little bit of work still just to play there.
But otherwise, the banks have really responded really well to the regulatory requirements. They’ve put all their measures in place. They’re within all of their caps, to the point now that we’re starting to see a little bit of interest rate action and rates actually starting to decrease so that they can attract new business.
Kevin: Really? So, you’re getting that feedback from the banks, eh? Is that what they’re doing?
Andrew: Yes. Now that their 10% year-on-year investor caps are all in order and the interest-only caps are in order, we’re starting now to see that the banks are… They’ve always been open for business; they’ve just had to follow the regulator’s rules. And now that they’ve done that, they have their houses in order, so to speak, yes, absolutely, they’re open for business – to the point that I even suspect that we’re going to see a little interest-rate war early in 2018, with the banks really actively competing for new business and looking to just manage their volumes, but certainly where they have room to move it, there will be some attractive offers out there.
Kevin: You and I discussed this in a recent video interview, and that is the health of the Australian banks, how healthy they are, given the fact that they are so heavily regulated. How does the banking system in Australia compare to some of the overseas markets, Andrew?
Andrew: Yes, really well. I think our Big Four consistently rank in the top ten banks in the world, based on their strengths, their profitability. Everyone has a go at our banks making money, but we’d much rather them making money than being closed, because at the end of the day, if we don’t have a sound banking system, none of us can borrow for our homes, for our investment properties, to try to leverage and enjoy the lives that we have. If you can invest and get ahead and enjoy that lifestyle, well, we all need leverage and the lenders to assist us with that.
So, we want a very sound banking system, and our banks stand up as well as any of those around the world. The regulators have been asking them to put more capital aside, so that they have nice big buffers so that should we have a little jolt in any of the markets, or we’re seeing sales of people who are over-committed, they’re pretty well positioned to be able to fund that.
Kevin: Yes, you’re right; we are very critical of the banks and their profit levels. We can always hear the community moan when they do talk about their profit levels, but you have to take your hat off to them; they balance it well. And I think if you dig a little bit deeper, you’ll see they also do a lot of really good community work. So, it’s not just the banks screaming out for money.
Andrew: Absolutely. And the Big Four, Kevin, just remember they all employ about 25,000 to 30,000 Australians, so they’re quite large employers and really good contributors to our economy.
Kevin: Well, apart from that, too, they also have shareholders, and they have a responsibility to their shareholders to return those profits.
Andrew: And their actual return on investments… Everyone focuses on the billions of dollars, but the actual return on the investment isn’t as massive as what… The average business owner is making the same return. They might find they might not be able to get money from the bank.
Kevin: It’s a good opportunity, too – I know we’re talking to investors here – to maybe go and buy some bank shares. You could do a lot worse, Andrew.
Andrew: Yes, you always can. [5:47 inaudible] paid dividends. They’ve always been quite a sound investment.
Kevin: It’s always good talking to you, too, mate.
Andrew Mirams, of course, is one of our contributors, a regular contributor, and a supporter of the show, too. We like you to support our supporters, and you can do that by contacting Andrew and his team by using any one of the buttons on Real Estate Talk.
Thanks, Andrew. All the best, and talk to you again soon.
Andrew: My pleasure, Kevin, and all the best to you, too.