ARE AUSTRALIAN PROPERTY PRICES TOO HIGH?
Those who have been priced out of a market are quick to call wolf, saying property prices are too high. It can be easy to panic when you hear Australia’s level of household debt to GDP ratio is currently one of the highest in the world, but does this really signal trouble for the Aussie property market? Nathan shares his thoughts below.
LOW-INTEREST RATES MEAN MORE PEOPLE ARE BORROWING
The official cash rate has stayed low at 1.5% for some time now. This means money is cheap and it has never been a better time to borrow for many Australians. It’s no wonder that many are taking advantage of this.
While overall debt may be high, the actual weekly burden of that interest on that debt is actually pretty manageable compared to historic trends.
Responsible lending practices ensure that borrowers they don’t bite off more than they can chew.
LENDING FINANCE IS WELL-REGULATED
One thing the US lacked in the lead up to the GFC in 2008 was prudent lending finance regulation. The subprime mortgage crisis occurred due to a huge percentage of loans being issued to people who couldn’t afford to pay them back.
Is this the case in Australia? No. Thanks to the recent APRA regulations, lending finance has become tightly regulated in Australia, with several buffers put in place when assessing the serviceability of each borrower.
Unlike in the US pre-GFC, borrowers here need to prove that they are able to service their loans, even if interest rates rise, and provide sizable deposits.
This is helping to protect our market from any bubble scenarios occurring.
SYDNEY IS EXPENSIVE, BUT THERE ARE PLENTY OF OTHER PLACES TO BUY
A lot of people will look at Sydney house prices and say Australia has an overpriced property market. This simply is not the case.
Sydney is the New York of Australia. Its population is always growing, its demand for housing outstrips supply and its prices are phenomenal. Sydney does not represent the whole Australian property market.
Queensland, on the other hand, also has a growing population thanks to its climate and lifestyle prospects, but, in its metro markets of Brisbane and the Gold Coast, prices can be less than pre-GFC values.
Clearly, there are many other markets in Australia, such as the Queensland market, that are affordable for the average wage earner.
A GOOD FINANCE STRATEGIST IS ESSENTIAL FOR ANY PROPERTY INVESTOR
There are many investors active in the market right now. This means banks are putting up barriers for investors, as they strive to maintain a balance between investor and owner/occupier loans on their books.
With lending now much more restricted for investors, it is now more important than ever before to structure your loans correctly.
A finance strategist, who has a proven track record in helping portfolio building investors become successful, can help you find out the best loans to take out and the best way to structure them.
Nathan sees a bright future ahead for property, in fact so much that he is putting his money where his mouth is and still investing to this day.
How about you? What are your thoughts? Tell us below.