What's driving the property price spiral?

Sydney property prices are up almost 12 per cent over the past year and Melbourne prices are almost 8 per cent higher. But who is to blame?

It's foreign buyers, say some real estate agents. It's the trustees of self-managed super funds who are leading the charge, say others.

Yet, mortgage data from the Australian Bureau of Statistics supports the view it is domestic investors, with would-be first-home buyers on the sidelines.

There is no way of telling from the mortgage data who is buying real estate for their self-managed super funds. As for foreign buyers, the mortgage data is for Australian lenders only. Foreign buyers are allowed to buy new-build property, such as off-the-plan apartments. The rules administered by the Foreign Investment Review Board stipulate a foreign investor cannot buy an established house. But a temporary visa holder can, as long as the visa is valid for at least 12 months. But they are supposed to sell the property if they leave the country.

Foreign and temporary visa holders are supposed to apply to the Foreign Investment Review Board before making the purchase. More timely reporting of the data by the board would be helpful. We need to know how effectively the board enforces the rules.

The data is better on self-managed super funds. For the June 2013 quarter, the latest Australian Taxation Office data available, shows DIY superannuation funds had $17.5 billion invested in residential real estate. That is a not such a big number compared with the more than $500 billion held in DIY super funds. That is a typical exposure of only 3.5 per cent of DIY super fund's assets to Australian residential real estate. In the June quarter 2008, the amount held by DIY super funds in residential real estate was $10.6 billion.

Some of that increase will simply reflect the increase in property prices over the five years. Allowing for price rises, it appears DIY super funds could be creating demand for residential real estate of more than a $1 billion a year. That is not enough to move the median house prices on a national real estate market worth about $4 trillion.

However, the Tax Office data does not yet fully reflect the initial change and the further clarifications in rules that allowed trustees of self-managed super funds to borrow to buy residential real estate for their funds.

But there are more plausible reasons for the rise in property prices thus far. These include record-low interest rates, low returns on term deposits and investors' prepared to take more risk with their money for the first time since the global financial crisis. For first-time buyers, the state-based incentives have been wound back. Investors are not only piling into property, but also into Australian shares, whose prices are at five-year highs.

Watch John Collett and Clancy Yeates discuss the latest personal finance news at theage.com.au/money