12 Reasons Why There Is No Property Bubble in Australia
Source: Citi Group
Date: 9 September 2010
Some international clients remain concerned about the property market in Australia, continuing to argue for a collapse in property prices and spill overeffects to Australian banks. Very briefly, here are 12 12 reasons why a
property bubble is unlikely to develop or exist in Australia in the foreseeable future.
1. The additional Federal fiscal stimulus to housing was temporary. This and the period of low official interest rates are now over.
2. According to Rismark International, the ratio of dwelling prices to disposable income is around 4.6 times. This is comparable to most other industrialised countries. Estimates that suggest it is higher are usually based on comparing capital city prices to nationwide incomes data. This is not the correct methodology to use.
3. If based on cities that have a population of 700,000 or more, Australia’s urbanisation rate is higher than in Japan, the US, Canada, NZ and the UK. Higher urbanisation tends to support higher capital city property prices.
4. More than 80% of the Australian population lives near the coast. Coastal properties tend to attract a price premium globally.
5. Australia has one of the highest population growth rates in the OECD.
6. There is no oversupply. In fact, excess demand is about 25,000 dwellings per annum.
7. A very low default rate of 0.5% of all housing loans.
8. A low unemployment rate of 5.3% and improving private sector wages growth.
9. Owners are liable for debts on their houses should they default. There is no such thing as “jingle mail” in Australia.
10. Australians tend to spend more of their income on houses compared to other industrialised nations and less on consumption goods.
11. Most mortgagees have positive equity in their owner-occupier homes, ie, are well ahead on repayments.
12. Housing credit growth is below average. Australia is unlikely to get a
housing bubble without easy credit conditions.
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