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Tuesday, 14 April 2015

Sydney investor loans continue to power higher

Lending finance solid

The ABS released its Lending Finance data this morning, which revealed a few more tentatively positive signs for the Australian economy.

With business sentiment and business conditions having been recorded as improving in March, to add to record high building approvals, this was a solid release which adds a little further weight to the argument that low interest rates are gradually taking some effect.

Although reported commercial finance of a seasonally adjusted $43.5 billion represented a 1 per cent decline on the preceding month, the January figure was itself a 13 per cent month-on-month jump and the "trend" result in total commercial finance has therefore now completed a hat-trick of monthly gains.

We already know from last week's Housing Finance data that total owner-occupier lending has recorded double digit growth on a rolling annual basis.

On a rolling 12 monthly basis total commercial finance is also now 18 per cent higher than a year ago at $505 billion as compared to a comparative prior year figure of $426 billion.

There does of course remain a concern that lending finance is too heavily weighted towards property investment over productive business lending, as I detailed recently when looking through the RBA's Financial Aggregates data for the month of February 2015.

Nevertheless, total lending finance of $826 billion over the past year is a robust 14 per cent year-on-year increase which suggests that low interest rates are biting.

Investor lending focussed on Sydney

Buried within the Lending Finance figures we can gain further insight into where property investor finance is flowing to, and the answer, in a word, is: "Sydney".

New South Wales investor loans continued to soar high to a new record of $57.9 billion on a rolling annual basis as shown in the graphic below.

February is not typically the strongest month for mortgages written and the March data will be of most interest to the regulator (APRA), but the weighting of loans towards Sydney remains abundantly clear.

To put this in perspective, the total value of investor mortgages written in February in New South Wales at $4.4 billion was more than the total of those of in Victoria ($2.6 billion) and Queensland ($1.6 billion) combined.

Incredibly a massive 68 per cent of total home lending in the month was accounted for by the Premier State.

Investor loans have also increased solidly year-on-year in Victoria (+22 per cent) and Queensland (+14 per cent).

However, as noted here many times previously, the markets favoured by investors are by no means uniform.

The value of investor loans written in South Australia in February 2015 remains lower than in February 2008 - a kind of irritating "7 year itch" for Adelaide property investors, the mendicant economy sucking the enthusiasm out of the air. 

Meanwhile, the value of investor loans in Western Australia now appears set to decline, having already passed a peak in rolling annual terms at $13.05 billion back in October 2014.

The wrap

Overall, this was another solid month of commercial lending following on from January's strong result, which suggests that low interest rates may be biting just a little.

From a property investment perspective the seasonally total value of monthly investment lending has now been hovering in a narrow range close to the $12 billion mark for fully six months, which theoretically suggests that there may be room for further easing

However, it is nevertheless true that the focus of investor lending is increasingly shifting away from markets such as Adelaide, Perth and Darwin, while only continuing to intensify in Sydney.

This represents something of a dilemma for the regulator and for monetary policy.

All 26 Bloomberg surveyed economists called for an interest rate in May, but there have been just a few slithers of promising data which might keep rates on hold for another month.