* Home prices up 9.8 pct in 2013, fastest pace in four years
* Spike in borrowing for investment becomes a concern
* But credit subdued overall, rise in home building welcome
(Adds detail, analyst comment)
By Wayne Cole
SYDNEY, Jan 2 Home prices across Australia's
major cities rose over 2013 at the fastest pace in four years as
record low interest rates fuelled demand from investors who went
on a binge of borrowing in the last few months.
Figures from property consultant RPData-Rismark showed
overall dwelling prices rose 9.8 percent in 2013, more than
reversing two years of decline.
The year also ended on a bang with prices up 1.4 percent for
December alone, accelerating from a 0.1 percent pace the
previous month. For the fourth quarter, prices rose 2.8 percent.
While higher prices have stirred talk of a bubble, they are
considered by policymakers as necessary to encourage a
much-needed revival in home building.
The Reserve Bank of Australia (RBA), which cut interest
rates to an historic low of 2.5 percent last August, has been
counting on home construction to provide vital support to the
economy as a long boom in mining investment cools.
Higher prices have also boosted household wealth, confidence
and spending, exactly what easy monetary policy is meant to do.
Neither is the price appreciation exceptional by Australian
standards. RPData's Cameron Kusher noted that since 1996 there
were seven years where prices grew faster than in 2013.
"The rate of growth was not that startling given the low
interest rate environment and the previous successive years in
which home values fell," he said.
The gains have also been largely concentrated in a few hot
spots, with four of Australia's eight major cities seeing price
growth of just 3.5 percent or less.
In contrast values in Sydney jumped 14.5 percent last year,
while Perth enjoyed gains of 9.9 percent.
That growth owed much to investors attracted by relatively
high rental yields, further boosted by a tax regime that allows
investors to offset losses from investment property against
income from other sources, and a favourable capital gains tax
PAYING DOWN THE MORTGAGE
The value of mortgages for investment has been rising
quickly for some time and reached a record high in October, up
almost 29 percent on the same month a year earlier.
Such was the escalation in borrowing that it drew the
displeasure of the central bank, which warned Australians
against buying property in the hope of making a quick buck.
"The good news is that investors aren't just buying
established dwellings and driving up home prices, but money is
being ploughed into new house and apartment developments and
adding to housing supply," said Craig James, chief economist at
"It is clear that home construction will play a key role in
driving the broader economy in 2014."
Also reassuring policy makers is that total growth in credit
has remained very subdued despite the rush into property
investment. Credit outstanding rose by only 3.8 percent in the
year to November, far below the long-run average of 12 percent.
While new lending for housing has risen strongly it has been
offset by homeowners paying off their mortgages more quickly, a
unique feature of the Australian market.
As interest rates have fallen in the past two years many
mortgage holders chose to maintain their payments. The RBA
estimates that no less than two thirds of the savings from lower
rates has gone to repay debt.
"Old credit is being siphoned out much more rapidly than is
usual, due to a swift pace of amortization in existing owner
occupier mortgages," said Ben Jarman, an economist at JPMorgan.
"Reduced interest burdens have freed up cash that existing
mortgage holders have, to an unprecedented extent, elected to
save rather then spend."
(Reporting by Wayne Cole; Editing by John Mair and Eric Meijer)