Australian real estate investor Maureen
Pound said losing money on three rental apartments she owns in Melbourne
and Brisbane doesn’t concern her. She’s putting her faith in future
profits from rising property values.
“I might lose $30,000 on a property over 10 years, but the property
has gone up $200,000,” said Pound, a 46-year-old business management
consultant who lives in Melbourne.
Pound is one of more than a million Australian landlords who must
cover the difference between their mortgage payments and rental income.
Their bet on the continued ascent of housing prices is fuelling record
levels of debt and leaving investors more vulnerable to an increase in
interest rates or a downturn in property values.
“The question is, is the price appreciation assumption realistic,”
said Martin North, a Sydney-based principal at researcher Digital
Finance Analytics. “My opinion is no.”
Investors accounted for a record 51 per cent of new mortgages in
October, up from 46 per cent a year earlier, according to the latest
figures from the Australian Bureau of Statistics. Debt reached a high of
153 per cent of annual household disposable income in September,
according to the Reserve Bank of Australia.
The central bank warned in September that the rise in the number of
Australians buying homes to rent could be “a sign of speculative
excess.”
Landlords are purchasing more property as home prices climb to record
highs in major Australian cities. Last year they rose 7.9 per cent and
doubled in the decade to 2011, according to CoreLogic Inc.
The increases have been driven in part by Australia’s 2.5 per cent
benchmark cash rate, a low maintained by the RBA to stimulate the
Australian economy. That has allowed mortgage lenders to drop their
average benchmark variable rate to 5.95 per cent, the lowest since 2009.
“The key magnetic force for investors is capital growth,” said Andrew
Wilson, senior economist for Sydney-based researcher Domain Group.
“It’s no surprise that near-record numbers of investors have entered the
market over the past 12 months.”
As landlords increase their property holdings, the number of
first-time buyers who can afford a home is dwindling. They accounted for
a low of 11.6 per cent of all home loans in October, according to the
ABS.
Australia has the world’s most overvalued housing market on a
price-to-income basis after Belgium, according to the International
Monetary Fund.
Across Australia’s state and territory capitals, rents rose 1.8 per
cent in 2014, the slowest pace in more than a decade, according to Core
Logic.
The median advertised rent was unchanged over the last quarter,
remaining at $430 a week for houses, and $410 for apartments, it said.
About 1.3 million Australians, or two-thirds of all investors,
claimed losses on rental properties in the year ended June 30, 2012, a
7.5 per cent increase from two years earlier, according to the latest
data from the Australian Taxation Office. They lost about $13.8 billion.
The one-third of property investors who had gains brought in $5.9
billion in fiscal 2012.
Australia’s tax rules provide landlords relief from their losses,
giving them an incentive to buy property. Investors can claim deductions
against other earnings if rental property costs, including interest
payments, exceed income.
“The tax treatment of investor housing, in particular, tends to
encourage leveraged and speculative investment,” according to a
government-commissioned report released last month. It said housing is a
potential source of risk for the financial system and economy, and
recommended the government consider rule changes in a tax review due
later this year.
This news story is reprinted from www.smh.com.au
