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Rising Rental Rates

RENTS in Sydney are set to rise by as much as 20 per cent this year as investors sell residential property and pour money into superannuation.

An economist at Macquarie Bank, says a significant switch from property to superannuation is under way following changes by the Government to make super a more attractive investment.

"Presumably, the nearer investors are to age 60, the more likely they are to sell residential properties in order to buy assets that qualify as superannuation," he said.

A bulge, in tax-based selling of rental properties before the end of June transitional arrangements that allow the well-off to shift an extra $1 million into superannuation, is expected.

Adding to the pressure on the rental market, the number of new homes approved in NSW fell 10.6 per cent (to 2496). This compares with 6000 in late 2002, in the middle of the property boom.

On the demand side of the equation, the low affordability of homes is putting pressure on rents by forcing more young families to stay in rental accommodation longer.

The Treasurer, Peter Costello, has said he hopes the super changes will not only induce people to save more but turn them away from other types of investment such as property. "One of the areas I think [savings] could reallocate is out of the property market and into superannuation," he said.

The Real Estate Institute of NSW said the super changes were a big factor in Sydney's rental shortage. "The victims here are going to be the tenants". With the shortage of rental properties already severe, renters should brace for rent rises of as much as 20 per cent this year, "Rents were very low for five years, so I'm afraid it's catch-up time." they said
Rental supply increased as a result of a government tax overhaul that halved the tax paid on capital gains, prompting investors to pour money into investment properties.

The Real Estate Institute is calling on the Government to temper the effects of its latest super tax changes by allowing the direct transfer of investment properties into super funds. "With the current situation, it means that you have got to sell that investment property and then put the cash into superannuation".

A third of Australian families live in rental accommodation. Supply of new properties is expected to tighten further. A survey by the Mortgage Industry Association of Australia found just one in 10 expects to buy an investment property in the next six months. Looking ahead two to five years, less than a quarter intend to buy property.


Original Article published February 2007

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