Rory’s Rambles: Finance is changing

FINANCE in the property world is certainly changing rapidly right now.

One of the key drivers in this has been the Royal Commission into Australia’s banking sector.

Certainly banks needed a wake-up call — and a broom taken through some of their poor practices – as has been well documented in the media.

From the developer’s end, banks are certainly tightening their criteria in accordance with Australian Prudential Regulation Authority directives to reduce their exposure to property.

We are in a situation of massive population growth which, in turn, means high demand for land and houses, so it is counter-intuitive for APRA to restrict funding that in turns reduces supply.

The basics of economy are supply-and-demand equilibrium. Creating an environment of high demand and low supply can only mean one thing; that is, you guessed it, increasing housing prices.

At the other end of the spectrum, the Royal Commission has cast shadows over mortgage-broking practices which is resulting in a tidying up of bad practices, which was needed.

But, unfortunately, an over-reaction of the banks to tighten their lending practices to home buyers may lead to a credit squeeze which could cause a major correction.

Certainly, land and house prices have soared in the last 18 months and, hopefully, some sense will prevail and they will stabilise.

Otherwise we will fulfil our own prophecy.