Going by the numbers, Sydney is in the middle of an investment property boom as investors receive 40 per cent of all new mortgages issued in NSW, far ahead of first-home buyers’ loan approvals. This has led to complaints about property investors hogging the home market, particularly the more affordable properties, as well as concerns from property market experts that this could create problems for the whole system down the track.
Investment properties clearly make an attractive proposition to many people, particularly with interest rates at record lows and the healthy returns currently offered by rentals. However, as more people rush to join the investment property market, the concern is that they will not only drive up home prices for everyone but these investors are also unprepared for any fluctuations in the economy more broadly – such as rises in interest rates.
Market analysts are worried that the appeal of negative gearing – where tax-deductible mortgage interest repayments are greater than the rental returns on the home – and strong capital gains from rising home values may have blinded many property investors to the risk. Concerns are that many investors have properties too highly leveraged and if the economy suffers any shocks, like a jump in unemployment, or interest rates rise this may instigate a crash in property values across the market.
That’s why it’s essential that property investors do their research and seek out expert advice in the property market, as well as know their own financial circumstances to ensure they are able to withstand any fluctuations in the property market or wider economy.