CBA’s Narev Says Australian Banks Must Watch Rising House Prices

Commonwealth Bank of Australia Chief Executive Officer Ian Narev, head of the country’s largest mortgage lender, said the nation’s banking industry needs to be watchful of house price increases to avoid a bubble.

While current home price gains are justified by supply and demand fundamentals, the impact of an extended period of low interest rates should be monitored, Narev told reporters after a speech in Melbourne today.

“We’ve got to realize that if we are in a sustained period of low interest rates, it is something we have to keep our eyes on,” he said.

Australian home prices surged to a record in September as the lowest mortgage rates in four years attracted buyers. Prices gained about 5 percent this year in the country’s biggest cities, led by an 8 percent jump in Sydney. They may rise as much as 11 percent next year, property researcher SQM Research Pty. said on Sept. 17.

Commonwealth Bank’s mortgage business expanded 5 percent in the six months to June 30, according to stock exchange filings. Mortgages represent 60 percent of gross loans for the Sydney-based bank.

Australia’s central bank, which this week left its benchmark interest rate unchanged at a record low, sounded a note of caution in its financial stability review last week, saying property buyers needed to have “realistic expectations of future dwelling price growth.”

Possible Shocks

Australia’s economy faces “possible financial shocks” from external circumstances such as a slowdown in China and so-called tapering by the U.S. Federal Reserve, Narev said. “If that reverberates into the Australian economy, there will be risks to all sectors, including the property sector,” he said.

House prices may continue to rise because Australia is building less accommodation than the population needs, John Morschel, Chairman of Australia & New Zealand Banking Group Ltd., said today in a speech in Sydney.

“Naturally, you’re going to have increasing housing prices once the conditions seem reasonable for people to borrow,” he said. “I don’t believe it’s a bubble. It might be two years down the track, but I don’t believe it’s a bubble at the moment.”

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