The Commonwealth Bank has sent another rocket through an already weak Australian property market by announcing it will no longer lend to self-managed super funds investing in residential and commercial property loans.
Following Westpac’s departure from the self-managed super fund (SMSF) lending space in July, the Commonwealth Bank’s announcement that it will cut new lending for both residential and commercial property loans, could have significant impacts.
The Commonwealth Bank was the last major lender to offer the loan type.
While SMSF lending is a relatively small portion of the lending sector, today’s announcement is another cross against the weakening property market, already suffering from a diminishing flow of investment.
As of close of business, 12 October this year, the Commonwealth Bank will discontinue its ‘SuperGear’ lending product which allowed SMSFs to invest in residential and commercial property.
Current SMSF customers with the Commonwealth Bank will not be affected.
A CBA spokesperson told Yahoo Finance the move reflected its strategy to become a “simpler, better bank”.
The move follows intense scrutiny around SMSF lending and warnings from property groups, like RiskWise property research, about the dangers of the investment type.
According to the 2014 major inquiry by David Murray into the financial system, the best way to improve stability in the financial system would be to completely cut SMSF property lending. However, the government didn’t follow Murray’s suggestion, something he considered a mistake.
The Australian Securities and Investments Commission has also recently warned of how advice in the SMSF lending sector is in need of “significant improvement.”
Market Economics economist, Stephen Koukoulas told Yahoo Finance the move will hit the housing market when it’s already down, as investor lending continues to soften.
According to the latest lending statistics from the Australian Prudential Regulation Authority (APRA) investor home loan approvals fell 12.4 per cent ($16.6 billion) in the year to 30 June 2018, down to 31.1 per cent ($117.5 billion) of new home loan approvals.
This fall is largely considered to be triggered by a regulatory crackdown on risky investor lending.
“We’ve got this concern that the banks have been a little too risky in who they’ve lent to and the products they’ve put out, and the housing market is clearly on a downward slope,” Koukoulas said.
“Perhaps they [the Commonwealth Bank] are just wanting to mitigate their risk if house prices were to drop another five-10 per cent.
“I suspect they might even be preempting what could be ahead for the housing market and getting out before it hits the wall.”
The combination of rising interest rates with an oversupply of new apartments isn’t helping, he added.
“It’s always been inevitable that there would be a scaling back in the access that SMSFs have to the property market because it’s been one of the factors that has undermined the stability in superannuation policy,” he said.
“But [the Commonwealth Bank’s departure] does mean that another support for the housing market, which is already very, very fragile, is going to be taken away.”
By Lucy Dean
14 September 2018