LRBA constraints called for to address ‘market distortion’
Calls for borrowing in super to become further constrained have intensified in light of the ongoing concerns raised by the RBA about the heated Australian property market.
Since the RBA released its Financial Stability Review for September 2013, concerns have been raised that outflows from SMSFs into property are fuelling a residential property bubble.
“Property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past,” the report stated.
Assistant governor Malcolm Edey told the federal government’s Inquiry into Affordable Housing yesterday that there was growing concern about riskier lending practices, increasing speculative activity and growing investor borrowing.
“When we’ve talked about the nature of the problem what we have said is we think there is an imbalance in the form of excessive activity by investors in the market that is out of proportion of their normal share in the housing market,” he said.
David Bryant, chief executive officer of Australian Unity Investments, said that action is long overdue to address the current “distortion” in the system regarding investment housing and negative gearing.
“It is time to look at adjusting concessions on negative gearing as a means to address the RBA’s concerns with the housing market, rather than resorting to blunt instruments such as capital controls,” he said.
"The very nature of negative gearing means that investors are betting that negative income will be outweighed by a larger increase in property value. So as a sensible superannuation investment strategy, it is problematic in its own right – regardless of any other issues in our property market
"The contribution from SMSFs to any market distortion is increasing as this area grows, and at a minimum needs to come under the same constraints that would apply to other negatively-geared investors."
Mr Bryant said negative gearing is heavily used by investors, and that is likely having a significant impact on demand.
“1.8 million Australians own investment properties and two thirds of these record a loss against their rental income each year. And with 45 percent of home loans now going to investors - which is two and a half times the level of the early 1990s - that number is only going to increase.”