Property investors exposed to structural risks

Investment properties are the second largest sector for investments outside superannuation and Australians face a myriad of structural risks when holding these assets, according to Rice Warner.

The research house’s latest analysis found of the $2.3 trillion total personal investments as at 30 June 2016, 40.6 per cent were invested in investment property, 44.3 per cent in cash and term deposits, 12.09 per cent in equities, and 2.1 per cent in fixed interest and loans.

Rice Warner said as Australian investors were predominantly tied to variable rate loans, any increase in rates would feed into the cost of servicing mortgages, especially for investors who were using negative gearing and hence dependent on income other than their rent to service the mortgages.

It said other structural risks for property assets included:

• Changes in tax treatment as housing affordability moves up the political agenda;
• Restrictions on movement of capital by international investors, especially those based in China;
• Property-specific risks such as repair bills and loss of rent; and
• Difficulties with property investments at the same time as difficulties with other investments that have similar economic drivers.

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Rice Warner noted that allowing super to be accessed to fund housing purchase would further escalate risks.

“The combination of dilution of retirement savings and further upward pressure on property prices means such a measure would at best be counter-productive for those whom it is intended to help, and at worst would further increase the risk of the property booms in Sydney and Melbourne ending in tears,” the analysis said.