Real Estate in Sydney Australia,

Is It Going Downhill?

Prices of real estate in Sydney Australia are higher than in other similar countries and kept pushing up. Is the bubble going to burst?

There has been a lot of controversy around Australian property prices.

Investors have had it good for a long time with prices pushing up.

Which means they were getting wealthier and wealthier, especially if they purchased a long time ago and stuck to their investment.

But it is a lot of pain for first home buyers to get on the first rung of the property ladder.

More people started to rent rather than buy.

So are prices sustainable?

A number of indicators point to homes in Sydney keeping or increasing their value but there are almost as many hinting to a downturn.

Here are 7 reasons for Australian real estate to cool down:

Tighter Lending
Harder to Save for a Deposit
Government Boost Removed
Interest Rates
High Price to Average Income Ratio
The Bubble Burst Elsewhere
Foreign Investment Rules

#1. Tighter Lending

It has become harder to obtain a loan. Lending criteria were easy to meet before the recession. And loan applications were approved quickly. But, now, we live in a different world.

Banks have tightened their rules when they saw what happened around. Borrowers now need to have a hefty deposit and not rely on banks offering them 100% of the funds necessary to buy the house. They may also be asked to pay for mortgage insurance.

#2. Harder to Save for a Deposit

Spending is so much more fun than saving. Many people prefer to rent and postpone setting money aside for a deposit for their first home.

Also utility prices have increased and the increases have a knock-on effect on all the other prices. This means wannabe first home buyers find it more difficult to accumulate enough for a home deposit.

#3. Government Boost Removed

The first home owner's boost is gone. First home buyers can still access the $7000 grant, which is a one off payment from the government towards the price of the house.

But in 2008 and 2009 they had access to additional government funds. It made home purchase easier. It also helped drive prices up. Not anymore.

In addition as of 1 Januray 2012 the stamp duty concessions are gone too.

Unless you are buying a new home.

Before you could have bought any home in Sydney valued below $500,000 and not have to pay any stamp duty. At all.

Now the nil duty works only for brand new houses. And there are not very many new ones built.

#4. Interest Rates

When interest rates go up prices should move down. Logic, huh?

Because it is more and more difficult to pay the debts. More distressed owners put their properties up for sale. More sellers than buyers.

Houses stay longer on the market and sellers accept lower offers. This is a dreaded and powerful reason for prices to cool.

But since the second half of 2011 interest rates started to go down. So prices should turn in the opposite direction. Did they?

Not really. What is happening around the world is keeping buyers very reluctant to commit to a mortgage, despite lower interest rates.

#5. High Price to Income Ratio

Prices of real estate in Sydney Australia are higher than in countries where there is a similar lifestyle.

Continuously increasing prices are not sustainable. They are already somewhere in the range of 5 to 7 times higher than the average family home income. Those mortgage payments are just harder to make.

#6. The Bubble Burst Elsewhere

Prices crashed in almost all countries where they were overvalued, so it may happen in Australia too.

#7. Foreign Investment Rules

In 2008 and 2009 a flood of foreign buyers started to purchase real estate in Sydney Australia and made it more difficult for Australians to get into the property market.

But the rules have changed and it is more difficult now for foreign investors to buy homes. This means less demand and less pressure on the prices.