Australian property market is one the deepest and widest asset bubbles. Australians have a long history of home ownership commitment and have always been prepared to invest their finances in property. However, a structural problem in the country is that the Australian property is extremely over-valuated.
At 186%, the country is having one of the highest ratios of household debt to disposable income. In Sydney, median price to income multiples are 12x and 10x in Melbourne. Even in smaller capitals the median price to income multiple is still an unaffordable 6x.
The Australian property bubble is unique due to the degree is influencing the nation’s economy. Australia has been once a diverse and vibrant manufacturing and resources economy. However, over the last twenty years that shape changed entirely as the Australian housing bubble grew.
A large proportion of the debt related to Australian property is borrowed from offshore, mostly by its big four major banks. This situation had as a result inflated land prices and local currency. Australian competitiveness has been dramatically diminished and tradable sectors like manufacturing were driven offshore.
Spread across 9.6 million dwellings and worth an estimated $6.5 trillion, housing is the single biggest asset class in Australia. According to market experts, the housing asset class is worth more than four times the value of Australian listed stocks.
Investment property continues to attract national debate around housing affordability and taxation policy. Australian investors comprise almost half of the demand for new mortgages and own almost one third of Australia’s housing. Buyer’s agents are busy serving the demand of investors.
According to the property market analysts, at a national level investment is generally more present in the lower valuation brackets. Around 53.4% of investment-owned dwellings in Australia have less than $500,000t estimated market value. Meanwhile, only 46.9% of owner occupied dwellings are in the same price bracket.
The major banks raising home loan rates independently of the RBA, low affordability and high demand, have dominated the Australian property market in the past year. In 2017, it is expected that the global political uncertainty will further affect Australia. Well into 2017, President Trump election in the US and Brexit are expected to spread their ramifications across the global economy.
Banks feel less pressured by the RBA monthly decisions, in the current context of low interest rate environment. In 2017, by raising rates, it’s possible that the Australian banks will continue to restrict lending, particularly for investors.
According to property market experts, high demand is here to stay. The most in-demand markets keeping busy buyer’s agents are Tasmania and New South Wales. Since mid 2015, Tasmania has risen quickly in popularity and now has reached the highest levels of demand among all territories and states, for all dwellings.
Central coast suburbs in New South Wales are increasing in popularity. The higher demand is driven primarily by home buyers from Sydney who is looking for more affordable, yet larger homes.
As the Western Australian economy is still growing, buyers will also find great opportunities in Perth. While overall prices are down, some suburbs such as Swanbourne and Peppermint Grove experienced significant price increases. In 2017, buyers may find some great investment opportunities in Perth, with the market nearing the bottom in the city.