Australians lured to residential market by record-low interest rates
Australian banks face higher risk as self-funded retirees and others push for piece of a boom
Dharmendra Singh has spent A$1.3 million (HK$9.4 million) since July on two houses 39 kilometres northwest of Sydney, drawing on an existing mortgage to pay a deposit on one and taking out two new loans.
"Low interest rates and rental yields make it easy," said Singh, who now has three investment properties with his wife, Pranita. "The rental and tax savings can pay off your mortgage. You just sit tight and wait for the property to appreciate."
Singh, 38, is one of thousands of Australian investors snapping up properties, attracted by the lowest mortgage rates in four years and rising demand for housing. Home prices gained about 5 per cent this year in the country's biggest cities, led by an 8 per cent increase in Sydney.
With no signs that the central bank would start raising rates, prices would jump as much as 11 per cent next year, property researcher SQM Research said, with Sydney values soaring as much as 20 per cent.
Banks have been eager to attract rental investors, with home-loan approvals in the second quarter at the highest in at least five years. That has provided a boost during otherwise slow credit growth while exposing lenders to possible house-price declines in the longer-term.
"We see strong earnings-per-share growth for the big four Australian banks in 2014 and 2015 on cost cuts and higher credit growth," David Ellis, a Sydney-based analyst with Morningstar, said. "Investor appetite for houses is good to some degree, but if it pushes house prices into a bubble, it isn't good in the long term for the Australian economy or for the banks."
Fuelling the strong investor demand is the Reserve Bank of Australia's record-low 2.5 per cent benchmark rate, which has seen the country's average standard variable home loan rate offered by banks fall 0.9 percentage points from a year earlier to 5.95 per cent in August.