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Head of financial stability at the Reserve Bank of Australia Jonathan Kearns believes that increased foreign investment in the commercial property market has contributed to a sharp rise in prices.
In a speech about financial stability and foreign investment in the Australian property market on 20 November, Mr Kearns stated that commercial property prices have “risen sharply” amid increased demand from foreign investors seeking high yields in the Australian commercial property market.
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Mr Kearns warned that with increased investor confidence in the global market, a continued rise in commercial property prices could lead to a “sharp correction” in the market.
“While there has not been a surge in construction, the run up in commercial property prices raises the risk of a sharp correction: for example, if there is a change in sentiment or a pick-up in long-term interest rates,” the RBA official warned.
The head of financial stability also noted that while Australian banks are tightening lending conditions following regulatory changes, there’s been a surge in the Asian commercial property lending space.
Mr Kearns said: “Asian banks have grown their commercial property lending sharply, more than doubling their market share in just two years, although it remains relatively small.
“This strong growth in commercial property lending by Asian banks is reminiscent of European banks’ growth in the lead up to the financial crisis.
“However, whereas Australian banks eased their lending standards in that pre-crisis period in order to compete, this time Australian banks do not appear to have eased lending standards.”
Mr Kearns said that APRA’s investigation into the commercial property lending space will ensure that standards “are not eroded”.
