Given the high number of property investors in Australia, the Reserve Bank is worried that if capital growth slows, investors will put their properties on the market and hurt home owners in the process.
It’s a logical argument in an environment where capital growth is becoming increasingly difficult to come by. What if investors take their gains and go?
Last week, during a panel discussion in Sydney hosted by Lander & Rogers and Westpac, Reserve Bank assistant governor Michele Bullock spoke about the “human costs” of financial instability, which has become one of the biggest concerns for the central bank.
“House prices aren’t the issue,” Ms Bullock said, adding that the behaviours driving market outcomes are what the RBA is looking at more closely.
“If investors are chasing capital gains, they might be spurred on by rising house prices. If a slowdown occurs, that could affect sentiment and they could do the same on the downside.
“They might be procyclical in this sense. It’s not their home, so they are not going to be desperate to hang onto it if house prices start to decline. They might just get rid of it. This is reinforced if their focus is on capital gains.”
Ms Bullock explained that if this sort of behaviour takes hold, there is a risk that property prices might decline, impacting all Australian property owners.
“That will affect owner-occupiers, who have often taken on high debt. They could end up in a situation where the debt on the property is more than the value of the property. And they are having to continue to service that debt.”
According to the 2017 PIPA Investment Survey Report, released last week, 64 per cent of investors are chasing long-term capital growth. The report surveyed 742 property investors.
When it came to their exit strategy, 29 per cent said that they are looking to sell down or sell all of their properties and 47 per cent said that they will hold and never sell.
Meanwhile, an increasing number of property investors are opting not to purchase their own home. The report found that almost 62 per cent of investors said that they would consider rentvesting, where instead of buying a home to live in, they rent in one location and invest in another.
James Mitchell, Mortgage Business, 3 October 2017