Stricter Rules ‘May Stop Housing Bubble’

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Stricter rules on home lending could prevent an Australian house price bubble from wrecking the economy, an international credit ratings agency says.

Standard and Poor’s has made the finding as the Reserve Bank of Australia and a federal parliamentary inquiry explore ways of stopping property investors from overheating the real estate market.

The New York-based agency said sustained and strong increases in property prices could lead to “a rapid downturn in property prices”, which could eventually destabilise the broader economy and the financial system.

But changes to lending rules would likely trigger a slowdown in investor and interest-only residential mortgage lending, it concluded.

“We believe the types of measures that are likely to be applied in the short term are those that will strengthen the resilience to a downturn in property prices of both borrowers and the banking system, in addition to reinforcing sound lending practices,” the credit ratings agency said.

A parliamentary inquiry on Thursday made four recommendations into foreign investment, including tougher penalties for property brokers who help overseas investors skirt foreign investment rules and a $1,500 administration fee for overseas buyers.

In October, RBA assistant governor Malcolm Edey flagged that an announcement was likely by the end of 2014 about measures to curb housing investor activity.

The central bank and other agencies, including the Australian Prudential Regulation Authority, are reviewing lending standards.


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