Property investors, many of whom are mortgaged heavily, have been quitting the Australian housing market to pour up to $1 million each into superannuation to take advantage of the generous contributions allowance before the super payout tax is abolished on July 1.
The superannuation regime, announced in the May 2006 budget and made even more attractive by allowing large sums to be invested now, has combined with rising interest rates and tax cuts to create a crisis in rental markets around Australia, experts say.
Borrowing for negatively geared property investment has plunged by 30 per cent since June, with the biggest falls in NSW, Western Australia and the ACT, the latest figures show.
At the same time, the rental vacancy rates around Australia have dropped from a long-term average of 2.9 per cent to 1.8 per cent, with families and young couples who thought that the high price of housing and mortgage repayments a barrier to entry, are now struggling to find somewhere to rent that they can afford.
As vacancies fall, asking rents are soaring, with official figures released yesterday showing a massive 6.9 per cent jump last year in Sydney. This does not take into account the recent practice of rental auctions where the highest bidder gets to be the proud tenant.
Investment property lending in NSW has plunged by 38.1 per cent since June, a much greater drop than that which followed the introduction of the ill-fated ``exit tax'' on property investors in that state in 2004.
In a clear sign that the West Australian property boom has run out of steam, investment property lending in the state has plunged 37.1 per cent in six months. In most other states it has dropped by about 20 per cent.
Housing Industry Association chief economist Harley Dale said yesterday the new superannuation rules, higher mortgage interest rates and tax cuts had combined to make negatively geared property investment less attractive.
"There was a recovery in the housing investment market until the middle of last year when we found we were in a higher interest rate environment,'' Mr Dale said.
"The impact of superannuation was not so evident until the last quarter of last year, once the new rules started coming on to people's radar.''
The tax cuts reduced the tax savings from negative gearing for anyone earning less than $150,000.
Mr Dale said the downturn in property investment was entirely due to individuals pulling out of the market. Commercial property development has only weakened slightly since rates started rising early this year.
But Treasurer Peter Costello does not accept that his superannuation reforms are contributing to the downturn in property investment.
A spokesman said yesterday he endorsed the view of the Reserve Bank in its latest economic review that it was unsurprising investors were unwilling to supply additional rental property, given high property costs and low rental yields.
The Government rejected industry requests to allow investment properties to be transferred in to superannuation.
Source: The Australian
