High residential prices not indicative of bubble

High residential prices not indicative of bubble

Posted on Thursday, May 15 2014 at 9:27 AM

Increased residential property prices in Sydney, Melbourne and Brisbane are a result of normal market movement and not indicative of a property bubble, according to a survey by the Australian Property Institute (API).

Seventy-four per cent of respondents to the 32nd
API Australian Property
Directions Survey
believe that increased
residential property prices in Brisbane are a normal market movement, while 59
per cent of respondents thought the same of the Melbourne market.

The result was more varied for the Sydney
residential market, with 40 per cent of respondents believing increased prices
were normal market movement and 36 per cent believing it was a temporary spike.

Aldo Galante, API Victoria president, says that
when the current historically low interest rates were taken into account, the
movement in prices was expected.

“Approximately 50 per cent of respondents named
low interest rates as a significant driver for increased demand and prices
across Sydney, Melbourne and Brisbane,” Galante says.

“While price growth has slowed, we believe that
significant falls in prices are unlikely.”

Many first homebuyers have found it difficult to
enter the property market, with survey respondents naming housing
affordability, competition from residential property investors and the lack of
government subsidies as the three main factors impacting this group.

“Unfortunately there are numerous factors
working against first homebuyers,” Galante says.

“There’s a limited supply of affordable housing
across Sydney, Melbourne and Brisbane, and much of this is being purchased by
those investing in property, both inside and outside of Self-Managed Super Funds,
as well as by existing homeowners looking to upgrade their family home.

“The effect of this is most strongly felt in
Sydney, where residential property prices have increased significantly. With
many first homebuyers being priced out of the owner-occupier market.

“As a result, there are a growing number of
first homebuyers who are choosing to enter the market by buying an investment
property rather than a place of residence.

“This allows them to get on the property ladder
by buying a more affordable property in an area they can afford to buy in, but
wouldn’t necessarily choose to live in.”

Sydney’s residential property market is expected
to peak in late 2014, with Melbourne’s market approximately six months behind.
The majority of respondents also believed that interest rates would remain similar
for the next 12 months, but move higher over the next three years.

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