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Four reasons property prices are rising higher and higher

Four reasons property prices are rising higher and higher
Four reasons property prices are rising higher and higher

GUEST OBSERVATION

There is no one key factor as to why property costs what it does. Recently, people have been complaining that it's interest rates, international investment and a million other reasons as to why housing is unaffordable in Australia.

Negative gearing cops a lot of flack in the media, but the truth is a combination of factors are pushing prices up. Here are the other key reasons prices are rising:

  1. Interest rates

    One of the reasons prices have gone up is record low interest rates. Money is cheaper than previously and many investors see an opportunity to lock in interest rates.

    A 1-2% rise in interest rates will put a lot more pressure on investors and potentially increase the stock on the market. However at the moment, a lot of properties can be neutrally geared making financial burdens manageable.

    Fact: Variable mortgages were 17% in 1989. That is one way to starve off investors buying up all of the property. 

  2. International investment

    An astonishing amount of money has been invested in to Australian property. You hear these fanatics saying "Ban Asian investment!" However that isn't the solution.

    Surprisingly when the research was presented, international investment came from all over the globe. And where did the second largest amount of investment come from after China's $6 billion dollars in 2013? That's right, Canada, a country with a population of 35 million who invested just under $5 billion dollars last year. You haven't heard once for people to ban Canadian investment.

    The trick here is not to ban international investment, but to make it less attractive. Charging a higher exit fee on profit made off the property is one way, as well as increasing the taxes on international rentals received off an investment property

  3. Lack of supply

    The cold hard fact about why property is expensive is because of basic economics. The reason we read about property prices being pushed up is because more people want to live in some areas more than others. 

    Housing is not unaffordable in Australia, it just depends on where you want to live. You can buy a home further out of CBD locations, but you have to sacrifice your ideal location in order to do it. If the government incentivised people to sell homes, we would have more supply and balance the demand issue.

    At the moment, people buy homes either in their super account or as an investment and land bank them. They pass these on through their family and never 'realise' their investment. The solution is to create a greater incentive for people to sell.

  4. Super is way to attractive

    Before negative gearing is abolished, there needs to be an investigation into allowing people to buy homes in their super funds. Currently, investors who have bought a property using super funds and decide to sell a property after they have started drawing down a pension, don't pay any capital gains tax. If you decide to hold your property in super, any rental income is taxed at 15% and then not at all during the pension phase. Solution: Tax people at a higher level when they claim revenue off their asset after claiming their pension. 

There are multiple reasons why prices are currently so high. We need to collectively tackle everyone of these and stop complaining about each in isolation. If we make amendments to some of these, work on building out more avenues like the first home buyers grant, but on a larger scale, and decreased the attractiveness for investors, then we may actually get somewhere. Whatever the case is, it won't happen over night, and it will take work. 

Rocky Bartolotto is the national sales director for Homely.com.au and a Sydney auctioneers, with over 4000 auctions performed through his business Auction Services.

Todd Schulberg handles all things marketing for Homely.com.au.

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