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Investment loans leading growth

A RESERVE Bank analysis of the housing market has high-lighted the rapid growth in lending to investors.

This trend helps to explain the Reserve Bank’s unease about the state of the national housing market (see main article).

Since 1990, bank lending to owner-occupiers has grown at an annual rate of 13.5 per cent.

Bank lending to investors has grown much faster, up 21.0 per cent each year.

As a result, investor loans now account for 31 per cent of the banking industry’s total stock of housing loans, double the level in 1990. The Reserve Bank says this trend is not surprising in light of banking deregulation and increased competition in the housing loans market.

However, it does seem concerned by more recent developments. Over the past 18 months or so, investor loans have grown “exceptionally quickly”.

“Loans to investors have accounted for more than half the pick-up in monthly loan appro-vals in the current upswing in the housing cycle,” the bank said.

The Reserve Bank believes this growth may partly reflect “the growing perception that returns in the share market will be lower than those seen in the preceding five years or so, with the implication that investment in property is preferable in terms of risk and return”.

It counsels investors to question the outlook for housing returns.

“The large increase in supply of properties to the rental market which is occurring at present must raise some doubts about the prospects for returns on this type of investment over the next several years,” the bank said.

“Any assumption by investors that future capital gains can be assured will have to undergo some revision.”

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