Low Rates Drive Investors into Property Rush

Michael Janda | ABC online | August 26, 2013

http://www.abc.net.au/news/2013-08-26/low-rates-drive-investors-into-property-rush/4913262

Australia’s biggest real estate market continues to lead national property prices higher, with Sydney posting another weekend where the clearance rate was around 80 per cent.

Analysts say the high clearance rates in Sydney are due to a shortage of properties on the market at the same time that buyers are starting to respond to record low interest rates with increased demand, especially from investors.

Real estate research firm SQM’s managing director Louis Christopher says Melbourne has twice as many properties currently on the market as Sydney, where only 23,000 homes are for sale.

He says Brisbane has more properties listed for sale, at 26,000, even though Sydney is a far bigger city.

“The reality is is that over the past 12 months, listings have come down fairly quickly in Sydney. So stock has been absorbed as buyer demand has increased,” Mr Christopher said.

The latest figures from RP Data show that the average house in Sydney is spending just 30 days on the market before sale, while apartments are going even quicker at 28 days.

Melbourne is just behind at 40 days for houses and a bit longer for apartments, while Perth sales take a little longer still, Brisbane properties spend more than two months on the market on average, Adelaide around 70 days and Hobart sales take almost three months.

The quick selling times in Sydney have fed through to steep price growth, with home values up around 2 per cent in July alone according to RP Data, nearly 4 per cent over the past quarter and nearly 7 per cent so far year.

Mr Christopher says Sydney’s real estate market is clearly on the boil.

“In Sydney prices are accelerating, and we believe the current tempo is about a 9 to 12 per cent price increase per annum,” he said.

While analysts had expected Melbourne home prices to stagnate, they are up more than 4 per cent on average so far this year.

RP Data’s research director Tim Lawless says investors are far and away the main driving force, especially in the booming Sydney market.

“Vacancy rates are up 2 per cent, rents are rising, and we’re seeing a lot of investors really driving the market now,” he said.

“In fact investor numbers are up about 20 per cent compared to the same time last year.”

That is also something that Sydney-based buyers’ agent Nick Viner has observed through his business.

He says while there are still plenty of first time buyers and upgraders coming through his door, there has been a particularly strong increase in the number of investors purchasing property for their self-managed super fund.

“Probably up to about a million dollars is running particularly strong for a number of reasons,” he said.

“I think there’s a lot of investors in that sector, and then there’s investors who buy outright, there’s investors who buy with their self-managed super funds

“I think the word is a lot more out there that [buying investment property for self-managed super funds] is something that people can do.”

Cause for concern

Mr Christopher says financial authorities may start getting concerned if the investor driven price rises continue.

“Normally we see first home buyers start off a new housing recovery. So this is abnormal, and it suggests that potentially the recovery’s more speculative which will worry the Reserve Bank of Australia,” he said.

“It’s not a secret that, when we look at international countries such as Ireland and Spain, their last cyclical uplift before the big crash, it was all driven by investor activity.”

However, Mr Christopher says the Reserve Bank will face some tough choices if investors keep piling into the property market and it feels the need to take action.

“They may well be faced with a situation in say about 12 months from now where prices nationally may well be growing beyond their comfort zone, beyond that 7 per cent number,” he speculated.

“Yet we still could have a situation where the overall economy’s still slow, where consumer sentiment is not exactly strong, business sentiment not exactly strong.

“What will the RBA do? Will they lift rates, despite a slowdown in the economy, just to stop a housing bubble?”

One option in that circumstance would be for Australia’s financial authorities to follow New Zealand’s recent lead and put limits on the amount of low deposit loans banks can issue.

However, Mr Lawless says that is not likely to happen, and the RBA will wage a war of words on house prices before it launches any other action, just as it did with Glenn Stevens taking the rare step of appearing on breakfast television in March 2010.

“If the housing market does become overheated, it’ll be more around the lines of the commentary they’re making and the jaw boning stance that they have I’ll be very surprised if we actually saw a New Zealand-style intervention, a regulatory intervention in Australia,” Mr Lawless said.

One near certainty is that there will again be a growing chorus of calls for action if home prices continue to rise at the rate currently seen in Sydney, with many first home buyers struggling to compete with investors to get into the market.

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