The interaction of the various levers that our political and economic masters are attempting to use is creating some interesting outcomes. Depending on your position, this will affect your financial situation now and maybe into the future.
For some time now, the Reserve bank has been attempting to kick-start the post-mining boom economy by using the only potent tool in their toolbox – interest rates. Despite a series of cuts, the general economy is stuck in low gear and the Aussie dollar is still above the target 75 US cents.
Low interest rates have however, created a feeding frenzy of property investors. This has significantly increased prices for Sydney property but has had little impact elsewhere. With increased property prices in Sydney, rental yields for investors have fallen below desirable levels so astute investors are ignoring Sydney.
Unfortunately, the same is not true of the regulators! Australian Prudential Regulation Authority (APRA) has decided that it will be able to fix the problem the Reserve Bank’s low interest rates has caused. Among other functions, APRA’s role is to oversee the banks to make sure they are maintaining appropriate levels of liquidity and lending policies. Admittedly, an important role that has served Australia well.
To solve the Sydney property problem, APRA has regulated to reduce the banks’ ability to lend for property investment anywhere. Lending to self-managed superannuation funds (despite the fact that these comprise a very small percentage of borrowers) has been virtually banned.
So I’m confused.
At the end of the mining construction boom, the gurus (and politicians) explained that this would allow construction resources to be redirected to addressing Australia’s housing shortage. Developers have responded by bringing projects online where the demand is sufficient to justify this.
APRA’s actions will remove some investor demand making their projects more difficult to sell and certainly delay any new developments. Of course is bad news for construction workers (among others)!
Apparently developers are expected to build but not sell the finished product. That sounds like a recipe for disaster.
Removing Australian investors from the market will leave the field open for foreign investors who are not reliant on the Australian banking system for investment funds. Is this a positive result or another unfortunate outcome?
Being a spectator in this mismatch of action and reaction is not a comfortable position for anyone concerned about their financial future. For the majority of Australians, waiting for the gurus to realise that misguided interference in the market (even if it is part of their charter) will have significant unintended consequences is frustrating.