One of the country's most senior bankers has raised concerns about an "irrational obsession" with property investment, calling for a frank debate about tax distortions that pump up house prices.
The chief executive of ANZ Bank's Australian arm Phil Chronican also said he could understand why the Reserve Bank was looking at imposing restrictions on lending to property investors.
With record low interest rates fuelling a powerful property boom in Sydney in particular, regulators were concerned some investor borrowers might be overstretching themselves as they bet on price rises.
The federal government's financial system inquiry, reporting to Treasurer Joe Hockey this month, had also said the surge in home loan debt in recent decades posed a potential "systemic risk" to the economy.
In an interview with Fairfax Media, Mr Chronican said he was worried some investors viewed buying property as a "one-way bet".
The nation would benefit from a debate about the favourable tax treatment for investing in property and a better understanding of the risks involved, he said.
"I do worry that some people behave as if housing is always a one-way bet," Mr Chronican said.
"I think there is a bit of an irrational obsession with housing as an investment class. For many investors, they would be better off in assets other than housing."
A key reason for the popularity of housing investment was the tax distortion created by allowing investors to deduct interest payments against other forms of income, he said.
Mr Chronican also highlighted several disadvantages of property investment that were not always appreciated, including the high costs of stamp duty and agent fees, and the lack of asset diversification.
Figures detailing the explosion in investment in Sydney's property market have underlined Reserve Bank concerns that a wave of speculation is making the property market increasingly unbalanced.
Investors have lit the fuse under the biggest residential property boom in more than a decade and account more than 55 per cent of all new property loans, according to ANZ Bank economists.
Official data from the Reserve Bank also shows bank loans to non-owner occupiers are surging at the fastest pace since the global financial crisis to a record $475 billion.
As the Sydney market awaits a flood of auctions in coming weeks, figures from the Reserve Bank on Friday show growth in lending to investors has hit 9.5 per cent a year, a pace not seen since March 2008.
That surge has been strongest in Sydney.
Sellers are also rushing to cash in on the frenzy. Some 878 auctions are scheduled for Saturday, the start of what is set to be the busiest November on record.
Fearing some buyers are taking on too much debt, the RBA has signalled it may intervene to cool the market by placing tougher controls on lending to property investors.
Figures published by the RBA on Friday showed the value of all loans extended to housing investors had grown by more than $40 billion in the past year to $475 billion, underlining the rapid growth in investor lending.
Sydney house prices rose by 16.6 per cent in the year to September to a record high of $844,000, according to Fairfax-owned Domain Group.
The health of the Sydney property market will be tested in coming weeks with a record number of sellers about to take their homes to auction.
"It is an unprecedented listings boom," said the senior economist for the Domain Group, Dr Andrew Wilson.
"A lot of people who have bought are now looking to sell and they all want to get it over and done with before Santa Claus comes."
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