Guy Debelle, deputy governor of the Reserve Bank of Australia, talks to Kimberley Long about the Australian property market and the growing strength of Asian banks in the country.

Guy Debelle

Guy Debelle

Q. Can you give an overview of the Australian economic climate – what are the main pressure points in the market?

A: Australia is seeing a continued period of economic growth and unemployment is down. In the coming year we expect to see more of the same. Across the housing markets there has been a sustained period of prices going up but we are starting to see this fall now, particularly in Sydney and Melbourne. There is a long way to go for them to return to sustainable levels. There has been an increase in infrastructure spending at a government level – this is needed after 10 years of seeing very little investment. It will take time for the benefits of this to be seen as there is a lot to catch up on.

Q. The residential property market has seen prices increasing rapidly in recent years. What has caused the property market to drop off at this time?

A: There have been a number of factors. One of the main ones is that there has been a large increase in supply in both Sydney and Melbourne. After a period of such strong growth, a decline is not that surprising, and the increase in supply has contributed to that. The fall in house prices has also seen investors stepping back from the market too. The tightening in lending standards over recent years has played a role.

Chinese buyers have also been a significant part of the property market for some time. However, the restrictions they are now facing on the movement of capital overseas is having an impact on the number of purchases. Both Sydney and Melbourne have been huge markets for Chinese students, with their parents buying them property to live in while they study.

Q. In recent years there have been huge changes to the banking industry, especially in the Asian market. How is Australian banking as a whole adapting to that change?

A: The local banks are having to reconsider how much energy they can focus on international markets. ANZ is almost entirely out of Asia after planning to replicate the HSBC model. Macquarie is the exception, with a strong international presence and more assets held in US dollars than Australian dollars.

We’ve seen Asian banks coming into Australia and this theme is likely to continue. While the housing market has cooled, the Chinese banks are looking at commercial property where there are still rising prices. While the presence of these banks is not yet threatening to take significant market share, their position is expanding. The international banks, such as Citi, Deutsche Bank and UBS, all have a strong footing, but have a specific client sector that they serve. They have a concentration of capital in Australia, and see it as a favourable place to be.

Q. The strength of the Australian economy is making it an attractive proposition for international financial institutions. How are Australian banks going to hold their ground?

A: Where the Australian banks are likely to continue to dominate is in the small and medium-sized enterprise sector. They have built up strong client relationships over the years that newcomers cannot replicate. The international banks have mainly stuck to banking the global multinational corporations anyway. The Australian banks would be happy to lend to these large corporates, but in this climate they have no need to borrow.

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