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12/04/2007
Investors are dipping a nervous toe back into the property market despite higher interest rates, reports the Sydney Herald...
After falling property prices sparked a rush for the exits three years ago, rising rental returns are tempting some back, a snapshot of mortgages by the Bureau of Statistics released yesterday shows.
The value of loans to property investors has risen for four consecutive months, jumping 8.9 per cent in February compared with 0.9 per cent for homeowners.
"It seems that the lure of higher rents - care of low vacancy rates - is too good to resist," an economist at the Commonwealth Bank, Joseph Capurso, said.
But analysts said the loans were going to wealthier investors speculating on established units, doing little to alleviate supply and affordability problems.
Younger generation still struggling
Investor loans to buy established homes rose 9.9 per cent, whereas loans for the construction of new rental properties fell 2.6 per cent, down 30 per cent over the past year.
A spokesman for Australian Property Monitors, Michael McNamara, said wealthy baby boomers nearing retirement were once again considering property as an investment strategy.
"It doesn't surprise us that many people are looking at property given that gross rental yields are rising and vacancy rates are so low," Mr McNamara said.
But a younger generation of first home buyers continues to struggle. The proportion of loans going to first home buyers fell to 17.5 per cent, below the long-term average of 20 per cent.
"If you have a look at gen X and gen Y, much of that generation has already stretched themselves quite significantly and in an environment in which there is much speculation about interest rate rises on the horizon," Mr McNamara said. "... The interest in investment properties would ... mostly be coming from baby boomers."
Property market remains polarised
Mr McNamara said Sydney's property market remained highly polarised, with double-digit price falls in some outer areas and double-digit rises in more salubrious suburbs.
Blue collar workers with big mortgages in the outer suburbs would be hard hit by another interest rate rise next month.
Financial markets now see this as a better-than-even chance, with the strong housing figures adding to arguments the Reserve Bank may need to raise rates again to curb consumer spending.
But some analysts questioned whether the rise in investor loans may simply reflect a higher churn of rental properties as investors switch over to superannuation.
Investors switch to superannuation
Matthew Hassan, an economist at Westpac, said.
"Recent strength may be due to existing investors selling property, i.e. to new investors, in order to take advantage of higher tax-free limits for lump sum transfers into superannuation that expire on June 30,"
Whichever way, the mortgage industry is welcoming investors back with open arms.
"This is one of the strongest increases we have seen in a long time and appears to put an end to recent reticence toward investment property," the head of the Mortgage and Finance Association of Australia, Phil Naylor, said.
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