Do you think investors are stupid to buy a property bubble?

Do you think investors are stupid to buy a property bubble?

A confluence of housing shortages, low interest rates, speculative fervour and last year’s move by the Rudd Government to relax foreign ownership rules on real estate have turbo-charged house prices.

In the latest Investor Pulse survey, conducted jointly by BusinessDay and marketing research group Colmar Brunton, there is no indication that investor appetite for property will slow down soon.

When asked if it was a good time to buy an investment property, 67 per cent agreed that it was because the supply shortage would support rental and price yields. Another 21 per cent thought prices would stagnate and only 12 per cent believed that prices would fall.

On the future of the boom, 32 per cent could see it running another year, 44 per cent for two or more years, and 7 per cent forever. Contrary to recent years, respondents ranked Sydney as the strongest property market in the current cycle, followed by Melbourne, Brisbane, Perth, Adelaide, Canberra, Darwin and Hobart.

The increase in foreign purchases also cannot be under estimated, following the decision last March by the federal government to relax its rules on property ownership. This abolished mandatory reporting of such acquisitions in a bid to ”enhance flexibility in the market”.

Before the change, foreign investment in Australian residential property had already started increasing, up 33 per cent to $20.4 billion. It is not known what the figures stand at in 2010 but there are suggestions that more than 30 per cent of homes auctioned are purchased by foreign speculators. If this is the case, it will dramatically add to the property bubble.

Investors are divided on possible solutions to the outsized price rises. A majority, 54 per cent, are against interest rate rises. When it comes to government policy, investors ranked cutting stamp duty as their best solution, just ahead of building more public housing and re-limiting foreign investment.

Another solution was also clear in the fact that 52 per cent of investors admitted they would reconsider the value of an investment property if the government reversed the 1999 capital gains tax cuts.

Investors clearly acknowledged the need for government intervention with 91 per cent seeing no solution coming from the private sector. Half reckoned banks will not lend to developers because their exposure to mortgages is already too high. Most of the other half agreed rather with the statement that the banks see the risk in overvalued prices and want to keep the market tight.

27 per cent of surveyed investors already owned an investment property and 16 per cent were are seriously considering buying one.

About the Author