The Australian housing market finally began to show signs of cooling. After rising at around 10% p.a. for three years, residential property prices fell slightly during the second quarter of 2018.

· The cool down was arguably triggered by tighter government regulations but also by the banks’ own tightening of its lending standards. More specifically, FIRB, which develops Australia’s foreign investment policy, restricted overseas investment in Australia’s real estate market, as foreign demand constituted about 16% of new properties at the peak in 2014. Furthermore, banks tightened their lending standards, following a rigorous scrutiny under the Royal Commission, which was recently established by the Australian government to investigate potential misconduct in the financial industry. In addition, increasing USD funding costs for Australian lenders have started to be passed on to households through increases in mortgage rates although still very moderately as the RBA cash rate remains flat at a historically lowest level.