Alistair Walsh | 3 October 2012

Low interest rates could lead to property bubble: Future Fund

Low interest rates could lead to property bubbles in some markets according to the head of property at the The Future Fund.

Barry Brakey says low interest rates could lead to strong growth in property values which could lead then to property bubble scenarios.

Brakey’s comments at a Melbourne real estate forum, came after the Reserve Bank of Australia lowered interest rates by 25 basis points to 3.25%.

“We think that this financial repression, if you like, of interest rates around the world can lead to bubbles forming in different markets, and we want to be really careful that we’re on the right side of that,” Brakey says.

He was reported by The Australian as noting recent low interest rates was cause for some concern in Australia’s sovereign wealth fund.

He said Australia’s property investors should be wary of the inflation caused by a lot of capital waiting to be invested directly into the Australian property market.

Brakey says Australia’s property market is already attracting overseas investors and there are many waiting to invest. He says they are all looking to invest in core property but there is only a limited amount of high-quality property on offer.

“We’ve seen a flight to the core around the world,” Brakey says.

He says the Future Fund was concerned about the overvaluing of Australian property which was holding it back from investing more in Australia.

“What that means for us is that we lie to invest in Australia. WE have a third of our investments in Australia (and) would have more if we could but in the end we won’t give up investment returns”

The Future Fund is an independently managed investment fund established in 2006 into which the Australian Government deposits its budget surplus. It holds $4.95 billion in property around the world.

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