After Years Of Huge Growth Australian House Prices Poised For Correction

After Years Of Huge Growth Australian House Prices Poised For Correction

There isn’t much good news on the horizon if you are an aspiring homeowner in Australia. Analysts warn that the already massive bubble in the nation’s real estate will likely get even larger, as government officials are too fearful to reverse the trend.

Sydney and Melbourne properties are estimated to be nearly 20% overvalued, according to Goldman Sachs, with Sydney prices now exceeding those in London. Furthermore, the Australian Bureau of Statistics (ABS) states that prices this year are expected to rise by almost 10%.

Strategist Kay Van-Petersen of Saxo Capital Asia worries that increasing economic instability in China could lead to a wave of capital into Australia. “The government has to try and talk it down and say it’s inflated, but at the same time all they can try and do is control the ongoing growth as best they can. If they wanted to prick it, they could, but Australia simply cannot afford to.”

China’s declining economy has led to decreasing demand for commodities produced by Australia’s mining industry. The instability in China coupled with the drop in commodity prices has led to more money moving into real estate as it seeks better returns.

As job losses continue to mount in the mining and construction industries, house prices will eventually have to follow. Australia’s central bank has already cut interest rates twice this year down to 2% and is expected to respond with further cuts.

Chinese investment in U.S. residential real estate amounted to 28% of foreign purchases in 2014, with the average price spent of $831,800.

Van Petersen noted the wise adjustment policies that have been pursued in New Zealand and Singapore markets, and stated that Australia should follow their example by dropping the property value that the current tax stamp is applied to on foreign buyers, from about AU$15 million (~$10.5 m), down to AU$1.5 million (~$1.05 m).

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