Australian real estate

Posted: July 13, 2017 in Uncategorized

The debate about Australian real estate seems to go on forever.

That prices are excessive is a fact, but are we in a bubble and will price to up and up.

The first driver of the pricing is interest rate.

In 2007 you could get a mortgage for circa 9.5%pa and now 50% less at around 4.5%.

If you think about the property in the same period increased of 100%!

As there is a leverage involved you can see the 1:2 correlation.

To see the future, just look at the interest rate movement.

While the Reserve Bank of Australia is still, the bank are all increasing/restricting the lending criteria.

So the answer on the data is that pricing are stabilizing and could go back 5-10%. But no crash.

The potential for real disruption is coming from the Government – that usually overshoot.

The new rules on foreign  owners and vacant property (some data from water usage and census say in Sydney there are approximately 90,000 vacant properties and 88,000 in Melbourne (20% of the housing investor market and 4.7% of the overall market) increase the pressure.

Also some new banking regulations (too long to mention but investor loan have to be reduced from 40% of the bank balance sheet to 30% and other prudential measure.

All the above can increase the pressure on housing to a -20% -30%.

And if in the next election Labor Party wins and they maintain the promise of cutting back the negative gearing that could be the end game.

Could the Government be so silly? Yes it can.

Just look at the gas/electricity price hike. In essence it happened because the Government allowed too much gas to be exported (Rudd-Gillard decision to allow gas export from Queensland to Japan).

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