Housing glut hits investor returns

Housing glut hits investor returns
Fleur Anderson and Steven Wardill
19jul02
THE Reserve Bank of Australia has warned Australians who have invested in property not to expect big future returns. Advertisement









In its monthly bulletin, the RBA said the housing market had been stimulated by the massive influx of investors, rather than an increase of owner-occupier buyers. Now a glut in rental investment properties has outstripped demand.



Since the 2000 property trough, home loan approvals for investors have soared 113 per cent. Home loan approvals for owner-occupiers rose only 48 per cent over the same period.

The RBA said one factor contributing to the boom in investment properties was the belief the strong sharemarket returns enjoyed over the past five years were now over.

"The large increase in the supply of properties to the rental market must raise some doubts about the prospects for returns on this type of investment over the next several years," the RBA said.

Rental yields have plummeted from more than 9 per cent in the late 1980s to less than 4 per cent in 2002.

The central bank said rents had not kept pace with the rises in house values.

"It would be unlikely that further strong price increases could co-exist with rising vacancy rates and falling rental yields for very long," the RBA said.

"It is more likely that any assumption by investors – that future capital gains can be assured – will have to undergo some revision."

Economists said this "revision" would happen only after more official interest rate rises.

House prices have jumped more than 9 per cent across Australia over the past five years. But a 17 per cent jump in the past year has helped fuel the real estate frenzy.

"Some part of this rise reflects the longer-term adjustment to a low inflation/low interest rate environment, which has increased the capacity of households to borrow – a development that cannot be repeated," the RBA said.

One economic expert, who preferred to remain unnamed, said the Reserve Bank had not owned up to being the major cause for the property boom.

In the months after September 11, Australia's interest rates sank to the lowest levels in 30 years.

Many economists believe the central bank kept the rates too low for too long.

More worrying for investors who have plunged into the housing market is that households are carrying more debt than a year ago.

The lending industry has led an aggressive pursuit of investment buyers.

Since 1990, bank lending to investors has grown each year by 21 per cent, compared with 13.5 per cent for lending to owner-occupiers.

Investors now account for more than 30 per cent of all home loans.


But the latest PRD research predicted the Brisbane housing market would outperform southern states for the next four years.

The research suggested the housing market was in the first year of a five-year boom cycle.

Unit sales in the inner-city unit market also had been extremely strong, recording 2800 new unit sales in the 12 months to March 2002, representing Brisbane's highest yearly sales figure.

But prominent Brisbane developer David Devine said the RBA report was Sydney and Melbourne-centric.

"New well-located property price drives in Brisbane will attract investment rather than older established property," he said. "Brisbane is only at the start of this."