Property becomes an investment turn-off

WITH mortgage interest rates sitting at a 12-year high, investors are turning away from property as credit costs mount.

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Property becomes an investment turn-off

WITH mortgage interest rates sitting at a 12-year high, investors are turning away from property as credit costs mount , with some investors opting to sell up before they go under.

"I have already have listed investment property for sale hoping to sell before I go under," said one NEWS.com.au reader in a recent survey on interest rates.

The Reserve Bank has warned that it may need to raise interest rates again if the economy doesn't slow down and inflation remains high, according to minutes released today of its June meeting on interest rates. 

The Reserve Bank also indicated houses prices would likely remain "flat" in the months ahead.

"Falls in auction clearance rates in both Sydney and Melbourne from the highs reached late in 2007 to below-average levels in the past few months were consistent with a continuation of flat house prices," the RBA minutes said.

Property less attractive

A survey of 2331 NEWS.com.au readers in March – which was the last time the RBA hiked rates - found property investment intentions were at their lowest in the three-year history of the survey.

Just 9 per cent of people were more likely to buy property in the months ahead compared to the current quarter.

The survey conducted by NEWS.com.au with online polling firm Coredata found that if there was another 1 percentage point rise in interest rates, 47 per cent of property investors would be likely to sell their assets.

Higher official interest rates have pushed up mortgage repayments towards 10 per cent this year. Higher rates have also weighed on property values by reducing demand, especially in the outer suburbs of big cities.

Costs too high

Many NEWS.com.au readers expressed the view that it was no longer worth investing in property due to increases in interest rates, which have coincided with a sharp rise in living costs.

One NEWS.com.au reader with investment properties said: "I have sold my investment property before getting into trouble. I am a real estate agent and business is now very quiet.”

“I was concerned I would not meet investment property loans," said another reader.

Some investors are keeping their options open and holding into their property, but are prepared to sell if economic growth slows.

"I have a rental investment property and use negative gearing to offset my losses each month. I'm becoming more reliant on monthly rental income to keep me afloat. If the worst comes to the worst (that is, economic recession), I can always sell my investment property and be debt free. I'm grateful that I have that choice."

Another less upbeat reader said: "I have to sell my investment property. But nobody wants to buy it!!!"

Some economists expect the Reserve Bank of Australia to keep on raising interest rates this year while others say slowing economic growth in Australia will cap interest rates at current levels.

The official cash rates stands at 7.25 per cent, and standard variable mortgage rates are currently at a 12-year high around 9.5 per cent.