This was a link provided to us today by Goran Padezanin which highlights a recent speech given by the RBA Deputy Governor. It is not difficult to see this being a problem for some property owners that continue to leverage any equity that became available to them. Given many markets in Australia are softening in terms of volumes and prices in particular sectors, going to a principle and interest repayment structure could be problematic. Combined with this has been the decline in weekly rents, often experienced in the apartment market which has had the highest investment exposure. Whilst this might be good for tenants, the downside is that many owners may have to put their hand deeper into their own pocket. The concerns for the RBA is that those pockets have a finite depth. It does beg the question though, is the RBA bracing for a significant price correction given the stress testing which has occurred across the major banks and the re-weighting of their property portfolios? Or is this simply a prudent governance strategy designed to take the wind out of the development industry's sails. Perhaps there is a little or a lot of both. Certainly the investment market has become significantly quieter which has put the brakes on the oversupply of product into many capital cities, which in theory should suggest a recovery will be quicker arriving should a genuine downturn occur.
2018 will be a telling year across the eastern seaboard as development finance through non traditional sectors is still readily available which means supply will continue to escalate. If supply stops though, the extraordinary population growth fuelled by international migration would see greater pressure placed on purchase prices, a conundrum the RBA has to deal with. With very few economic levers in its toolkit, the RBA finds itself once again caught between a rock and hard place.