Investors ignore signs and pile into property

Investors ignore signs and pile into property

Peter Martin
June 16, 2010 - 1:00AM

AUSTRALIANS are diving into negatively geared property even as the Reserve Bank signals that another interest rate rise could be only weeks away.

Figures from the Bureau of Statistics show that while lending to buy homes in which to live fell a seasonally adjusted 10 per cent in the first four months of the year, lending to property investors rose 11 per cent. In the past year lending to investors rose 30 per cent nationwide, and 20 per cent in NSW.

''These investors aren't concerned about interest rates,'' said a BIS Shrapnel analyst, Angie Zigomanis. ''They can see prices rising and real estate looks a safer bet than the stockmarket.''

While some of the new real estate investors were taking money out of the sharemarket, most were using funds they had been keeping on the sidelines.

''You've got people who have still got their jobs and have been fiscally conservative - and potentially money is burning a pocket,'' he said.

''If you stick money in a term deposit it faces tax. A lot of people are averse to putting it in the sharemarket, given how it's been going, and residential property has bottomed out and been climbing for 12 months. That's given people confidence to jump back in.''

Mr Zigomanis said a key factor for some would have been the government's decision not to move against negative gearing after the Henry tax review.

Tax Office figures show a record 1.2 million investors said they spent more money on their rental properties than they earned in 2007-08. One in every 10 taxpayers owned negatively geared property.

Reserve Bank figures released yesterday show that in other respects we are being more careful with our money. Credit card cash advances are down 5.5 per cent over the year and the proportion of those withdrawing cash from their bank's ATMs rather than another banks' has risen to a record 62 per cent.

The minutes of the Reserve's board meeting this month suggest it will leave rates on hold next month but consider lifting them in August in response to inflation figures to be released next month.

The minutes identify international developments and the outlook for inflation as the key drivers of rates and, unusually, nominate the next month's figures as the ones to watch.

The Reserve's deputy governor, Ric Battellino, told a conference he was unconcerned about household debt, noting that since 2006 it had stayed steady relative to disposable income.

Claims that house prices were high compared with income did not differentiate between city and regional salaries.

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http://www.watoday.com.au/business/investors-ignore-signs-and-pile-into-property-20100615-ydds.html