The Australian Prudential Regulation Authority ('APRA') recently released its quarterly property exposure data for domestic and foreign authorised deposit-taking institutions ('ADIs').
Navigating a pandemic
Our June quarter update is released in the immediate aftermath of confirmation Australia's economy shrank 7% in the three months to June 2020. This is more than three times the next worst result on record (-2% in 1974) and erases at least two years' worth of good economic growth. Yet as dramatic as this impact is, its effects are asymmetric within and between industry sectors, adding more complexity to the already dynamic operating environment faced by commercial real estate. For this reason, APRA's capacity to closely supervise lenders' portfolio mixes, as described in our March 2020 publication, may yet become even more critical to financial system stability.
Overall exposure to property
- ADIs' exposure to commercial property grew a solid 5.4% over the 12 months to 30 June 2020. Growth was led by a healthy rise in loan facilities for industrial property (13.3%), which is consistent with increasing investor demand, given the sector's strengthening fundamentals.
- Despite the obvious impacts of the COVID-19 pandemic shutdown, Tourism and Leisure, Retail and Office, all saw ADI exposure increases of 11.2%, 10.7% and 5.5%respectively over the year to June 2020.
- New interest-only residential loans increased by 13.1% over the year to June 2020. This is consistent with the 12 months to March 2020, during which there was an 11.4% increase.
- The proportion of highly leveraged loans (LVR greater than 80%) for the June 2020 quarter remained broadly in line with the March 2020 results (38.6%), dropping to 37.2%. This drop supports lenders' stronger self-regulation practices, which have typically kept the proportion of highly leveraged loans low.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.