RBA warns on property specufestors

From the just released biannual Financial Stability Review (FSR):

The strong growth of investor borrowing for property in recent years has potential implications for financial and macroeconomic stability. The characteristics and risk profile of households’ investment property exposures differ in important ways from those of owner-occupiers…

Because interest expenses on investment properties are tax deductible, investors have less incentive than owner-occupiers to pay down their debt. Many take out interest-only loans so that their debt does not decline over time…

Investors could amplify cycles in borrowing and housing prices contributing to economic risks. Investors might be more likely to sell their property if they expect prices to fall because it is an investment rather than their home…

The share of taxpayers who are property investors has increased steadily over the past few decades (Graph B1). In 2014/15, 11 per cent of the adult population, or just over 2 million people, had one or more investment properties…

With many not earning positive income from their property, prospective capital gains are more likely the primary rationale for investing…

Around 70 per cent of investors own just one property. However, around half of investment properties are owned by investors with multiple properties; 20 per cent of investors own two properties and 10 per cent own three or more. The number of investors with multiple properties has grown relative to those with a single property, particularly between 2013/14 and 2014/15 (Graph B2).. investors with multiple properties have likely contributed to higher risk…

The absolute size of rental loss is largest for higher-income taxpayers (Graph B4).

Relative to total income, however, the rental loss is largest for the lowest income bracket and gets progressively smaller for higher income brackets. This suggests that lower-income taxpayers may be more vulnerable to increases in debt repayment obligations or reductions in income. They might also be more reliant on rental income to meet their repayments. About 35 per cent of individuals in the lowest income bracket are over the age of 60 and the majority of this income group did not have any salary income…

Professionals, for example teachers, lawyers and doctors, account for the largest share of property investors, reflecting their large share as taxpayers and their greater propensity to be investors…

There has been a marked increase in the age of property investors since the mid 2000s. Over the decade to 2014/15, the share of property investors who were aged 60 years and over almost doubled (Graph B5)… There has also been a significant increase in the share of geared investors aged over 60…

Full report here.

Comments

  1. “Relative to total income, however, the rental loss is largest for the lowest income bracket and gets progressively smaller for higher income brackets. ”

    Maybe ScoMo was right.

    The stats would be better if it showed how many property investors were over 65 (or better still, retirees).

      • Spot on. Although i’d go a bit further to suggest there isn’t a single person in that organisation who knows the meaning of that word or has ever had a piece of sh1t under their fingernails. Ivory tower types.

  2. This RE bubble IS RBA stated policy. It was its solution to the end of the mining boom. It’s in their minutes!!! Patrician might have copies but I guess they are attainable.

    • There are clearly no mirrors anywhere in Martin Place, not even in the loos. Did they ever warn themselves? Has Lucy suddenly had an attack of the guilts?

      • I was wondering if Lucy Ellis has been sidelined by others in the Bank for such thoughts to be made public like this.

    • there is a pdf of a paper commissioned by the RBA re the current situation and 1893, 1930.
      I didnt keep it but they say there is no correlation. LOL, worse. probably misleading.

    • Most RBA board members are specufestors themselves, owning multiple investment properties. They are simply looking after their own interests, and will lower teh rates soon to keep the party goin’

    • I’m pretty certain it was reported in the media at the time. Personally, I recall being made aware via the ABC (radio) news and was, frankly, stunned that it was reported in a “business as usual” fashion. Not a raised eyebrow in sight

  3. Now we need a column to the right of the col. share of occupations of investors who are negativey geared
    showing percentage to be replaced in say the next 5 years from AI robotics
    then you have a working time line.

  4. how the fark does this pass for expertise, is the country this farked?

    “Because interest expenses on investment properties are tax deductible, investors have less incentive than owner-occupiers to pay down their debt. Many take out interest-only loans so that their debt does not decline over time…”

    Hopefully everyone appreciates how moronic that last sentence is, the “experts” are saying that people are deliberately losing a $1 to claim back $0.40 in tax deductions. WTF!!!!!!!!!!!!! Surely the general populace can not be that dumb over a pro-longed period of time.

    • The point is you would prefer to pay off your non-deductible debt first (like your home mortgage, car loan, credit card etc) with your free cashflow, not your investment loan.

      It is geared investing 101.

      • If you’ve got loss making debt funded property, a home mortgage, car loans and a credit card, you’re probably one pay cheque away from bankruptcy anyway.

      • What matters is your total income v total expenses (including interest on loans). If you are overall positive then all is well. The next trick is for all your various debts, if you had one where the interest was deductible and one where the interest wasn’t, of course you would prefer to pay off the non-deducible one first.

        Put it another way, by have IO on your investment you can pay off your home loan twice as quickly.

    • More like the adult host handing out free tequila shots at the 18th birthday party at 2am and telling the kids to drink responsibly.
      All care and no responsibility

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