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. In New South Wales, the country's most populous state, investor housing-loan approvals accounted for about 40 per cent of all approved mortgages by value, the highest since 2004, the RBA said in its semi-annual financial stability review released last week. "It is important that those purchasing property maintain realistic expectations of future dwelling price growth." Home prices in Australia's biggest cities rose 5.1 per cent in the eight months to August 31, according to the RP Data-Rismark Home Value Index, with prices up in the six months to August at the fastest pace in three years. Singh, who works in the finance sector, drew a 20 per cent deposit from his partly repaid mortgage in August to buy a A$660,000, three-bedroom show home on 564 square metres of land in Stanhope Gardens, two months after buying a similar property in the same suburb. He funded the purchases through separate loans from Commonwealth Bank of Australia, the nation's biggest mortgage lender, and Suncorp Group. "It is a good time to buy as the risk is very low," Singh said. Australian mortgages are the largest asset class for the four main banks and the biggest profit contributor for three of them. Banks have bolstered their mortgage margins by lowering home-loan rates by less than the RBA's rate cuts. While the central bank has dropped its benchmark rate by 2.25 percentage points since November 2011, the average variable rate on bank mortgages has fallen by only 1.85 percentage points, according RBA data. Investor loan approvals climbed to A$27.8 billion in the three months to June, the highest since March 2008 when the Australian Prudential Regulatory Authority started compiling the data. Investors such as Singh are relying on rising rental rates along with price appreciation in making their purchases. Sydney has seen a 32 per cent surge in residential rents since 2008, according to a report by broker Savills. The city was among five globally with the highest-yielding residential markets, at 4.8 per cent, the broker said. Sydney's median house price has risen 8 per cent this year to A$666,900, according to RP Data. The price gains have made Australian homes the sixth-most overvalued globally and the house-price-to-income ratio was 21 per cent above its long-term average, the Organisation for Economic Co-operation and Development said in May.