Wednesday, June 16, 2010

Want to be landlord? Dive in

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

New finance figures from the Bureau of Statistics show that while lending to buy homes in which to live slipped a seasonally-adjusted 10 per cent in the first four months of this year, lending to real estate investors climbed 11 per cent.

In the past year lending to investors surged an exceptional 30 per cent nationwide, and by an extraordinary 44 per cent in Victoria.

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

While some of the new real estate investors were taking money out of the stock market, most were using money 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 share market 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 the clincher for some would have been the government's decision not to move against negative gearing in response to the Henry Review.

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

On average they claimed losses of $10,640 each, and $26,500 for high income earners on more than $250,000 a year.

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 Australians withdrawing cash from their own bank's ATM rather than another bank's has climbed to a record 62 per cent.

Minutes of the Reserve Bank June board meeting suggest it will leave rates on hold next month but consider lifting them in August in response to inflation figures to be released late July.

The minutes identify international developments and the outlook for inflation as the key drivers of rates and unusually nominate the July figures as the one to watch.

Reserve Bank deputy Governor Ric Battellino told a Sydney conference he was unconcerned about household debt, noting that it stayed steady relative to disposable income since 2006.

"In my experience foreigners never ask about government debt in Australia, or corporate debt for that matter. It is not hard to understand why, as both government and corporate debt in Australia are low by international standards," he said.

While foreign debt had climbed as a proportion of GDP, as a proportion of total financing foreign liabilities had not grown since the 1980s.

Claims house prices were high relative to household incomes failed to differentiate between city and regional salaries.

"If you look at house prices relative to the incomes of the people living in those areas then the prices in the cities are quite reasonable," he told the conference.

Investors rush rental properties

Four months to April 2010 compared to four months to April 2009

NSW up 20%
Victoria up 44%
Queensland up 32%
Western Australia up 33%

Australia up 30%

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Published in today's SMH and Age

Ric Battelino on Debt

Related Posts

. What were they thinking? The tax heists that made us a nation of losers

. More on the negative side of negative gearing

. It's the Tax Stats - love them, get lost in them, have fun

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