The higher required payments at the end of an interest-only loan period also increase the risk of default.

"To make matters more awkward, it is exactly these types of loans that macro-prudential tools were used to target in late 2014. The initial response to measures, such as higher interest serviceability requirements, was encouraging. However, the recent resurgence in these loans raises questions about the effectiveness of these measures in the medium term," the group warned.

Hong Kong-based fund manager APT Capital Management, which has repeatedly raised concerns of a housing bubble in Australia, is of the view that the "horse has bolted".

"Our feeling is that the macro-prudential tightening represents an overdue recognition of the housing market troubles," APT strategist Amy Reynolds said.

"While it may go some way to deterring future speculative investments, we feel that the damage is already done and the market is already significantly overvalued. At this stage, such measures are more likely to fuel the downturn."

A godforsaken mess

But Australian economist Stephen Koukoulas said targeting interest-only loans was more of a deterrent than a curb of investor demand.

"Rather than necessarily lowering prices, this will help prices come off, a subtle difference. If circumstances change, it's about preventing a godforsaken mess," he said.


"That way the banks and households would not go belly up with no buffer."

Mr Koukoulas said buyers would see investor targets, negative gearing and superannuation discussions as signals to slow down.

One investor, communications executive Jingjing Hammon, told The Australian Financial Review she has already put her second investment property up for sale.

"I do have concerns about the possibility of Sydney house prices falling dramatically," she said.

"An adjustment at least, due to multiple factors, such as major banks are tightening lending, the RBA signalling actions to cool down the market, the Chinese government's restrictions on capital transfers, [the] Australian government's decision to abolish 457 work visas, showing Canberra is taking a nationalist posture on immigration, which in turn would have [an] adverse impact on house demand.

"I made this rational decision of selling investment property in Sydney and will transfer the profit to the US dollars."

Australia is not the only country in the Asia-Pacific region with rising debt, but whether macro-prudential interest rate policies could solve the problem is yet to be seen, Standard Life Investments says.

Major Australian banks such as ME Bank and Citigroup have already moved to clamp down on interest-only loans.