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The International Monetary Fund (IMF) has warned that the Australian housing market could "overshoot" due to recent jump in house prices and growing investor expectations.
In its latest report card on the Australian economy released Thursday, the IMF suggested the Australian authorities take preventative actions to ensure banks take a more conservative approach to mortgage lending.
"Attention should be paid to the risk - as in any situation where asset price inflation accelerates - that a prolonged period of rapid price growth could give rise to expectations-driven, self- reinforcing demand dynamics and price overshooting," the IMF said in the report.
"A sudden house price decline, were it to occur - possibly triggered by a shock to household incomes and borrowing costs - could reduce consumer confidence and impact overall economic activity.
"The authorities would need to be prepared to take preventative actions if household credit growth, transactions volume, and prices accelerate."
The IMF said features of the Australian regulatory and supervisory approach to property lending would help to limit the impact of a sharp decline in house prices on the financial system.
IMF deputy managing director Min Zhu, who is visiting Australia, told the Australian Broadcasting Corporation (ABC) that there is no indication of a housing bubble, but actions need to be taken by regulators to maintain strict lending standards.
"You have to see the qualifications of borrowers, you want to see the quality of the mortgage loan. I think this is the most important things. We need to carefully manage it," Zhu said.
"Particularly if expectation driven investments, you got to be very careful. So once again, the financial sector plays a very important role to make sure the quality for long, to make sure the lending standards is there."
Zhu said investors should not expect immediate capital gains from property.
