RBA boss warns property investors

With all the talk about Property Investing – here is some food for thought. Might be a good time to go against the trend and stop investing in over valued property and into undervalued stock market???

RBA boss warns property investors

SYDNEY

THE Reserve Bank of Australia today warned investors the home unit market won’t always be as rosy as it looked now.

“I’m using a certain amount of moral persuasion to try and get … investors to sit back and think again before they rush into the nearest investment seminar that’s going to tell them how to get rich quickly,” RBA governor Ian Macfarlane said today.

“My concern is the way it is so easy for someone to make this decision,” he told a parliamentary economics committee in regional Victoria.

Mr Macfarlane said property buyers once had to save 10 per cent of the purchase price as a deposit, then find a willing lender.

But now, insurance companies guaranteed developers the deposit at a negligible cost to investors, he said.

“Suddenly in 18 months when you take possession … you’ve got to get the full finance and that may be a point where you start having regrets about what you did 18 months ago which was so easy to do at that time.”

Mr Macfarlane said virtually all new housing loan approvals in the past year went to investors rather than aspiring owner-occupiers, pushing up residential property prices.

Investors then had to find tenants willing to pay high enough rents when the units were completed, he said.

That was getting harder because the doubling of the First Home Owner’s Grant to $14,000 converted many marginal renters into owner occupiers, he said.

“So they are actually reducing the future stock of renters … which again makes you wonder why we’re trying to expand the stock of rental accommodation at a rapid rate,” Mr Macfarlane said.

“We fear that many investors are just assuming that things will work out, which is a very dangerous thing to do if you are making a highly-leveraged investment.”

But recent trends suggested the market was cooling without the RBA needing to raise interest rates, Mr Macfarlane said.

“It is clear that rents are falling and that vacancy rates in apartments are rising,” he said.

“There is also recent evidence of a flattening out or, in some cases, falls in apartment prices and marked falls in auction clearance rates in Sydney and Melbourne.”