The Australian Prudential Regulation Authority (APRA), which regulates banks, has hinted it is concerned about the industry's rising exposure to property.

APRA has opened the door to imposing limits for the first time in a decade on how much can be lent to home buyers.

Australian central bank (RBA) board members are likely to have mixed feelings about property industry. They are probably glad that a housing upswing is under way, supporting growth, but may get nervous about overinflating housing prices.

RBA noted that the 2.25 percentage point in cuts between late 2011 and August 2013 have pushed lending rates to a historically low level, providing "a substantial degree of policy stimulus to the economy.

"This was most evident in the housing market, with the lags in the effect of policy meaning that earlier actions were still likely to take some time to have their full effect on demand more generally," said RBA.

Mortgage rates are at record lows, housing prices are already rising at high single-digit rates and property market turnover is increasing. It is believed that a pick-up in the housing sector is a necessary part of RBA's plans to rebalance Australia's growth as mining investment slows down.

It's a tricky balancing that RBA's preference would probably be for a rise in housing construction without a strong pick-up in housing prices. But individuals and developers are unlikely to be interested in building more houses unless they believe housing prices will continue to increase.

Meanwhile, RBA has for the first time warned that self-managed superannuation funds may be taking on too much risk by ramping up debt to buy property. In the minutes of their September meeting, when they left the benchmark interest rate at a record low 2.5 percent, RBA board members demanded banks avoid making risky loans as they compete for business.

"In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards," RBA said.

Record-low borrowing rates show signs of spurring Australia's property market, which has gained more than 7 percent over the past 12 months, raising concerns the gains might eventually form an unsustainable bubble.

In minutes that will add to the debate about potential imbalances caused by ultra-low borrowing costs, RBA for the first time highlighted where risks could be building.

"Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances. Members noted that this development would be closely monitored by bank staff in the period ahead," RBA said.

A day after the prudential regulator warned banks against increasing the number of risky loans to home buyers, Westpac's consumer confidence index posted its strongest result in almost three years. Confidence in buying a home has jumped 13.7 percent from a year ago to be just shy of the level reached in August 2009, when the Reserve Bank began unwinding "emergency low" rate cuts. There has also been a big shift in the favored destination for savings from bank deposits and paying off debt, into property.

To manage similar economy situations, a number of other countries have adopted so-called "macro-prudential" policy tools. In many cases this has involved the central bank adjusting the maximum loan-to-valuation ratio on housing loans to attempt to dampen the housing price cycle.

The recent adoption of this approach in New Zealand will no doubt be of interest to the Australian authorities, given the similarities between institutions in the two countries, said Adam Richardson, an economist at HSBC Australia.

However, Australia has its own history of housing price upswings from which to draw lessons. In the two most recent, in 2002-03 and 2009-10, the RBA did not apply what would be called macro-prudential instruments. Instead, they used a strategy which included warnings by RBA governor about the risks from rising housing prices and leverage, a hands-on approach by the prudential regulator in terms of bank stress tests and loan monitoring (what would be called "micro-prudential" settings). In both cases, eventually lifting the cash rate, with the idea of "leaning against" the risk of a building house price bubble.

One of the key lessons from Australia's own experience may therefore be that if you get the micro-prudential and interest rate settings right, macro-prudential adjustments may be unnecessary.

The RBA is far more likely to follow its previous approach than introduce new direct controls on the size of loans, said Paul Bloxham, chief economist at HSBC Australia.

Bloxham said that Australia's recent history suggests it can be effective in conditioning expectations. "We also expect the growing pressures in the housing market are likely to mean the RBA may be reluctant to cut the cash rate any further."