With a fire raging in the Melbourne and Sydney property markets, incentivised by emergency low interest rates, negative gearing and capital gains discounts, APRA has announced it can no longer wait for Basel IV banking reforms. The regulator plans to implement a new round of stringent regulation starting mid year.
“Without clarity as to a deadline for an agreement in Basel, we have decided it does not make sense to wait any longer to deal with the question of ‘unquestionably strong’,” APRA’s chairman Wayne Byres said in a speech on Wednesday night.
According to Corelogic, Australian house prices are growing at the fastest rate in 7 years.
The plan is understood to involve increasing the minimum risk-weights on property investor loans, and hence requiring the banks to hold billions more loss absorbing capital and be ‘Unquestionably Strong’ for when the inevitable property correction comes.
“If we are going to put an increasing number of eggs into a single basket, we’d better make sure that basket is an unquestionably strong one,” remarked Mr Byres.
Banks are expected to pass on the cost of increased capital to property investors through higher mortgage rates.
» APRA drops housing capital bombshell – The AFR, 5th April 2017.
» Real estate: Mortgage costs to rise as APRA hints at further home loan crackdown – The ABC, 5th April 2017.