Nicola Powell: Buoyant investor activity in Canberra

Spiralling investor lending, largely focused in Sydney and Melbourne, has inevitably caused major concern for policymakers.

The latest data reveals investors remain a key factor in the ACT market. Buoyant investor activity has helped to absorb the heightened level of apartment supply and is likely to have partly contributed to the solid detached home market.

The value of investor loans financed in May provided a hefty activity boost that totalled $229.54 million to the ACT market, the fifth highest on record. The solid value of investor loans experienced in May is somewhat anticipated given the number of public holidays the month before.

Investor activity slipped 6.1 per cent in June to $215.61 million worth of loans financed, according to the latest lending figures released from the Bureau of Statistics. Despite the minor decline, loan values over June recorded the 10th highest monthly figure and second highest June value since records began.

Investor loans peaked during the 2014-15 financial year with $2.49 billion worth of loans financed in the ACT. June 2015 recorded the highest monthly value on record at $259.64 million, with April and May figures falling a little short of the June high. The astounding spike is likely to have been an immediate reactive influence from interest rate cuts in February and May 2015. The slash to rates rejuvenated the investor market in the ACT, especially considering the previous rate cut was in August 2013.

Activity levels dropped substantially in the 2015-16 financial year with $1.98 billion loans financed. The fall is likely to have been influenced by the stricter regulatory measures imposed in December 2014.

The last financial year experienced the return of the investor in the ACT, recording the second highest investor loan value on record at $2.39 billion. A rebound was sparked by a cut to rates in May and August last year. The total value falls only just short of the peak experienced in the 2014-15 financial year.

Investors in the ACT have been only marginally affected by the stringent regulatory measures from the nation’s banking regulator, the Australian Prudential Regulation Authority. The initial measure of a 10 per cent investor credit growth cap placed in late 2014 remains.

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This year a suite of measures has been implemented to help contain the risks associated with excessively high levels of investor lending. A 30 per cent lending limit on new interest-only loans (often the preferred option for negatively geared investment property), strict limits to interest-only mortgages at a loan-to-value ratio greater than 80 per cent, as well as tighter lending conditions enforced to ensure serviceability.

The latest finance figures reveal the new measures have had little impact on investor activity.

Nicola Powell is a property expert for Allhomes. Twitter: @DocNicolaPowell