The Canary in the Coal Mine

We have a love affair with residential property.

The ‘Great Australian Dream’ seems to have gone from owning your own home to owning a few homes. You can’t go wrong with bricks and mortar, right?

With easy access to money and spruikers advocating tax savings through negative gearing many Aussies are up to their neck in debt. Over the past few years almost 1 in 10 ‘Mums and Dads’ have opened Self-Managed Super Funds where they pool their existing super funds, then borrowed in the Fund to buy residential property.

With expensive compliance costs, property costs and interest on loans many of these SMSF’s are running at a terrible loss, only being propped up by the members’ ongoing contributions. Former PM, Paul Keating described this as an “accident down the road”.

When interest rates rise and they will, and if the jobs markets tightens over the next couple of years, the ‘Mums and Dads’ who have gone down this path may have no other alternative but to sell the property and wind up the SMSF. If this is the trigger that makes supply exceed demand just watch what happens to the fundamentals of house prices.

Debt is a wonderful servant but a terrible master!