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The high activity from investors using self managed super funds (SMSF) to buy property may have an effect on the real estate market's cycle, according to the Reserve Bank of Australia (RBA).
Earlier this week (September 23) the RBA released its Financial Stability Review for September 2013, which contained an analysis of the effect of SMSF buyers in the market for real estate in Australia.
The RBA found that over the last ten years there has been a sizeable increase in the number of people using SMSFs, with this sector now accounting for almost one-third of superannuation assets in Australia ($1.6 trillion).
Since the federal government made changes to allow SMSF holders to make limited recourse borrowings with their funds to buy property, the number of people using their super funds to purchase real estate has increased. This is for both commercial and residential real estate.
According to the RBA research, SMSF holders have allocated a significant portion of their assets to direct property, at 15 per cent.
However, due to these increases in SMSF property investing, the RBA has stated that could "exacerbate property price cycles".
The residential real estate market in Australia has already seen considerable price growth over the last year. For example, the value of real estate in Sydney has risen by 7 per cent over the year ending August 2013, according to the RP Data Home Value Index.
This has led to median dwelling prices in the NSW state capital to reach $587,000, to make the city the most expensive market to purchase real estate in.
The RBA has also identified an increase in SMSF residential property investment just in the last year, with New South Wales being a particular key performer during this period.
SMSF investors may have been enticed by the historically low interest rates in the lending market, which has made the option of purchasing residential property extremely attractive.
"The increase in investor activity has been associated with a recent pick-up in Sydney housing price growth and reports of sale prices exceeding price guidance and valuations by wide margins. An increase in housing market activity more generally is not surprising given reductions in interest rates," the report read.
At the same time, the RBA warned SMSF investors that they need to be realistic about the growth in dwelling prices in the future.
This is because this growth in the long-term is predicted to be more aligned with income growth - according to the RBA.
