Westpac’s announcement this week that it will no longer be lending to non-residents and temporary visa holders will have a profound impact on the property market – especially as Westpac was arguably the major lender with this segment.
It is highly likely that other lenders will follow suit. But does this mean that the party is over?
Certainly the tsunami of foreign money that has been one of the drivers of the Australian property market will reduce. But the Australian property market has many segments.
Without the stimulus of overseas investors (and coupled with pressure from the Australian Prudential Regulation Authority) it is likely that property prices will plateau for some time now. But this will allow others to enter the market who have been scared off by competition with overseas investors.
According to the Reserve Bank owner occupied lending in March grew by a healthy 0.76 per cent, while investor lending grew by a paltry 0.08 per cent. Total housing lending is now $1.55 trillion.
What we are now likely to see is the re-entrance of the first home buyer. Typically first home owners have been crowded out by investors, but now the cards are stacked more in their favour. This is for two related reasons
- Over the next couple of years investors will be less able to get loan approval to sustain demand
- First home owners will have greater purchasing power in a less competitive market (especially as interest rates will remain low).
But, is it impossible for foreign investors to get finance? Absolutely not – if they know where to go. While the ‘Big Boys’ may pull out, there will still be niche players who will lend to overseas investors. The chances are that this sort of niche lender will only go through a broker.
And, let’s not forget, some of these overseas investors are able to pay cash – without the need for a loan at all.
The party’s not over – it’s just gone somewhere else.