"...the consensus favors serviceability tests that include larger interest-rate buffers, a higher allowance for living expenses and the exclusion or reduction of uncertain income streams."
- Commonwealth Bank of Australia
Following the yesterday's release of the Financial Stability Review report, President of the Reserve Bank of Australia Glenn Stevens confirmed the central bank's intentions to tighten lending rules for those investors, who are putting money into the real estate market. Measures are usually called and known as macro-prudential tools. The reason behind such a radical move is jumping housing prices, which makes it attractive for investors, but less affordable for medium class families to buy property. Especially it is felt in largest cities of Australia, namely Sydney and Melbourne. Moreover, concerns come from double-digit growth in lending to real estate investors. It advanced 90% in New South Wales region during past two years and climbed 50% in Victoria, where two mentioned big cities are the capitals, respectively.
Previously having more doubts about putting some restrictions on the housing market, Mr. Stevens retained some of them, as home prices may eventually start falling, as a result of RBA's measures. Therefore, the problem is not likely to be solved fully. Still, it puts more pressure on the Reserve Bank, which decreased main interest rate to record-low levels in order to withstand weakening in mining sector and heat up other sectors of the economy. In reality, only property market showed a considerable increase in activity and growth, while other industries are rising less noticeably.
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