RBA warns property buyers

The Reserve Bank has warned people buying their own homes and property investors that prices cannot keep on rising, raising fears that prices may actually fall and leave many people with negative equity.

House prices have skyrocketed over the past couple of years, especially in Sydney and Melbourne, but the gains can't be sustained, the Reserve Bank cautions, with rental vacancy rates rising and returns falling. Investors and home buyers should assess their positions, as prior capital gains are no guarantee of future gains, the bank said.

Michael Davoren, president of the Real Estate Institute of Australia, agreed that property values could not keep rising as rapidly as they have, however he believes that house prices will remain steady. But he thinks that apartment prices may “ease”.

Lending to property investors has grown at 21 per cent a year since 1990, compared with a 13.5 per cent growth in lending to owner-occupiers, and investor activity has been very strong over the past 18 months. But with rental supply now outstripping demand, the Reserve Bank warned of diminishing returns to investors.