Housing sentiment may be turning, says Reserve Bank’s Malcolm Edey

Measures to cool down the Sydney and Melbourne property markets appear to be working, according to a speech given on Friday by Reserve Bank assistant governor Malcolm Edey.

Dr Edey, who was addressing the Australian Property Institute’s Queensland Property Conference on the Gold Coast, said that measures last year to cool down overheated areas of the property market seemed to be working, but it was too early to be sure.

There was “tentative evidence that sentiment may now be turning in the housing markets in the two largest cities,” said Mr Edey.

Risks for commercial property are rising, the RBA warns. Photo: RBA

“But it is much too early to be definitive about that. What we can say is that the risks in that sector are now being more prudently managed than they were a year or so ago.”

The Australian Prudential Regulation Authority announced a number of measures in December 2014 to strengthen mortgage standards and reduce the risk of speculative bubbles appearing in the nation’s two biggest cities.

Dr Edey said that it would “take time for the full impact of these measures, and of the more recently announced increases in bank lending rates, to become apparent.”

Nonetheless, he said, “the indications to date are that the supervisory measures are having a beneficial effect on lending standards and are assisting in restraining lending finance.”

Dr Edey said there were also “a number of signs of increasing risk” for commercial property such as office buildings, risks that are “noticeably firmer in Sydney and Melbourne than in other centres”.

“The risks appear manageable at this stage, but they underscore the need for sound lending practices and for appropriate prudence by investors.”

He touched briefly on the points raised by Reserve Bank deputy governor Philip Lowe on Thursday, in which Dr Lowe scolded the banks over poor home loan data that is “complicating” the central bank’s understanding of the housing market and clouding its ability to make and enact policy decisions.

In a speech to the Finsia regulators’ panel, Philip Lowe said he was surprised and concerned over recent problems with the data relating to banks’ owner-occupier and investor housing loans, a development he described as disappointing.

Regulator scrutiny has unearthed an additional $50 billion worth of property investor loans on the banks’ books, Dr Lowe said.

Dr Edey backed the comments: “We now know that the level of investor activity in the housing market was in fact higher than previously thought.”