The Reserve Bank of Australia (RBA) has said that the risks associated with the surge in house prices and glut in production of apartments are manageable and can be contained.

In its new report, the Financial Stability Review, the bank said that heightened investor activity has increased the chances of a greater fall in the prices, resulting in a housing downturn. However, this price plunge in the property market is "comfortably manageable."

Although "the risks surrounding housing and mortgage markets seem higher than average at present, they appear to be comfortably manageable at this stage but they underscore the need to maintain sound lending standards and the resilience of the financial and non-financial sectors," the report stated.

The bank also said that banks' lending standards have fallen to an unimaginable level in recent years, with lenders failing to meet prudential expectations, and violating lending obligations set under consumer protection laws.

However, the crackdown on risky loans by the Australian Prudential Regulation Authority (APRA) has seen banks tightening their lending rules and getting borrowers to increase their deposits.

"The recent tightening should therefore be understood as addressing the need for a permanently stronger level of lending standards, as well as reversing some of the slackening in serviceability standards that had started to occur in response to strong lending competition," the report said.

Investment banks had warned that Australia could run into a recession by next year due to an alarming plunge in house prices. Interest rates are presently at a historic low of two percent.

Contact the writer at feedback@ibtimes.com.au, or let us know what you think below.

RELATED STORIES