| Australia home owners learning key lesson on property investment |
One of the most significant trends in the Australian real estate market is the growing sophistication of property owners according to Geoff Baldwin, CEO of the Roy Weston Group.
Mr Baldwin said that this trend has been highlighted by a new survey by the Reserve Bank which shows that most property owners take a responsible approach to home loans.
“Throughout Australia, most homeowners have achieved significant rates of capital growth over the last five years.
“An impression that is sometimes created is that property owners have used this wealth creation to “blow” on consumer items such as holidays and cars through the use of loans such as a line of credit facilities.
“This is a misconception which has been exposed by the Reserve Bank survey.
“The survey of 11,000 households undertaken by the Reserve Bank of Australia on the use of borrowings against equity in homes has found that the vast majority of Australians take a responsible approach and use their equity to invest in real estate.
“The RBA’s own extensive national survey of how homeowners used their home equity during 2004 as outlined in its October 2005 Bulletin has found that only 7.3% of equity withdrawals was going into increasing debt on depreciating items.
“This is good news for the Australian property management because it means that property owners will most likely use their increased levels of equity to invest in wealth creation strategies such as property investment,” he said.
Key findings of the RBA survey were:
* There was significant equity withdrawal in 2004 via the refinancing of existing mortgages and products such as home-equity loans.
* The bulk of equity withdrawal in 2004 was associated with transactions in the property market. Equity withdrawal through this channel typically occurs when households that have partly or fully paid down their mortgages sell to purchasers who take out larger new mortgages: this partly reflects life-cycle patterns of older households selling to younger households. It is likely that high turnover in the property market over 2001 to 2003, combined with rapid house price growth, explains why aggregate net housing equity withdrawal was particularly strong over that period.
* Around two-thirds of equity withdrawn in 2004 was invested in other assets or used to pay down other loans. In contrast, only a relatively small proportion of equity withdrawn was used to fund consumption. This implies that swings in housing equity withdrawal in recent years are likely to have had a smaller impact on aggregate household consumption than the raw figures on aggregate net household equity withdrawal would suggest.
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