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 not easy at all 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:
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.
The first home owner's grant is gone.
People who buy or build a brand new first home can still access a grant, which is a one off payment from the government towards the price of the house.
But during the first decade of the century they had access to additional government funds for any first home, brand new or not. It made home purchase easier. It also helped drive prices up. Not anymore.
In addition the stamp duty concessions are gone too.
Unless you are building or 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 stamp works only for brand new houses. But most sales are for old houses not new ones.
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.
Interest rates have been going down since the second half of 2011 and reached levels never thought of before. This has not fueled home prices immediately. Houses stayed longer on the market and sellers accepted lower offers.
What was happening around the world was keeping buyers reluctant to commit to a mortgage, despite lower interest rates.
This has changed in 2013 when real estate in Sydney Australia started to rise and rise. And in the rush to get into the market people over-committed.
But there is not too much room left for interest rates to continue to go down.
Which means any movement up will impact on prices. Not immediately though. But it will become more and more difficult to pay the debts. More distressed owners may put their properties up for sale. More sellers than buyers.
This is a dreaded and powerful reason for prices to cool.
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.
Prices crashed in almost all countries where they were overvalued, so it may happen in Australia too.
Especially with a construction boom resulting in more and more apartments being built and targeting investors.
SInce 2008 lots 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 are changing and there were a number of illegal sales reports in the news, which means it can become more difficult for foreign investors to buy homes. This could result in lower demand and less pressure on the prices.
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