The majority of respondents to a major Australian property survey believe the country’s two biggest residential markets are either in or entering a property bubble.
Results from The Australian Property Institute’s (API) 34th Property Directions Survey show that 58% of the valuers, fund managers, property financiers and property analysts who responded to the survey believe Sydney’s residential market is in or entering a bubble, while 53% believe the same for Melbourne.
Conversely, only 30% of respondents believe Brisbane’s residential market has entered a bubble.
While most respondents have labelled Sydney and Melbourne as bubbles, the majority don’t think they will burst in the immediate future.
“Fifty-three per cent of respondents believe that Sydney residential property prices will continue to rise for either six or 12 months with 26% stating 18 months,” API NSW division senior vice president Ian Muir said.
“Respondents are more certain in their predictions for Melbourne residential property with 76% seeing prices continuing to rise for six or 12 months”.
Muir said according to the results of the survey respondents believe Sydney and Melbourne prices will have passed the top of the property cycle by 2017, but prices will sit near the top for some time, while Brisbane prices are expected to near to the top of their cycle in the same year.
Respondents to the survey were unified in identifying interest rates as either a significant or very significant driver of demand for residential property in Sydney, while 95% pointed to foreign investment as being significant or very significant.
In Melbourne, 94% of respondents see foreign investment as a significant or very significant driver and 87% sighted low interest rates as significant to very significant.
For the Brisbane market, 88% of respondents believe interest rates are putting significant upward pressure on prices, while 44% believe foreign investment is doing the same.
In Perth, 79% of respondents believe interest rates are playing a major role in price rises, while only 29% see foreign investment as a key factor.
Muir said the large majority of respondents predicted little change in regards to inflation levels or interest rates over the next 12 months.
“It’s a different story with foreign investment, with a small majority of respondents believing levels will remain similar for the next six months,” he said.
“Respondents are less certain over the next 12 months, but most still see foreign investment at similar or higher levels.”
Other factors listed by respondents as potential impacts on the Australian property market included slowing Chinese economy, an increase in the unemployment rate and potential changes to foreign investment or immigration rules.
Sydney has been revealed as the nation’s most expensive city to rent a room in.
Figures from shared accommodation website flatmates.com.au show the average weekly rent for a room in Sydney rose to $275.44 this year, well above national average of $202.62.
Forty-four Sydney suburbs made the top 50 list of the most expensive suburbs to rent a room in, with a non-Sydney suburb not appearing until number 35 on the list.
Flatmates.com.au general manager Thomas Clement said Sydney’s dominance of the list wasn’t overly surprising.
“Given the fact that Sydney’s property market is currently well above the rest of the nation, it was not surprising to see it dominate the list,” Clement said.
“It was surprising, however, to see traditionally expensive city centres so far down the list, with Sydney, Brisbane and Melbourne CBDs offering lower rents than many suburban areas.”
Pyrmont took the top spot on the list with a weekly average room rent of $351.73, with Zetland ($346.36) and Potts Point ($342.70) taking out second and third place.
Manly, Darlinghurst, St Leonards, North Bondi, Camperdown, Bondi Beach and Haymarket rounded out the top 10 in that order, all with a weekly average room rent over $320.
Conversley Sydney’s most affordable suburb was Penrith with the average weekly room rent of $186.62, followed by Liverpool and Croydon at $192.91 and $196.95, respectively.
With a weekly room rent of $286.22 Melbourne’s Southbank is the is the first non-Sydney suburb on the list at number 35 and is joined by other Melbourne suburbs Docklands (40) and Fitzroy (50) as well as
Brisbane’s Dutton Park (41) and Brisbane City (49) and Perth’s Northbridge (48).
So what causes a bubble to burst?
An economic downturn, or interest rate increase means that homeowners who have borrowed too much, default on repayments. Demand then decreases, house prices fall meaning homeowners may be forced to sell their property at a loss.
Avoid being caught in the bubble.
- Make sure you can afford the loan repayments in the event of a rate rise.
- Don’t make the mistake of believing the value of a property can only climb.
- Consider fixed interest rates offering peace of mind and the ability to budget accurately for a set period.
- Remember that when the fixed period ends, you may need to adjust your budget if variable rates have risen.
- Be wary of panic selling. Keep repayments as high as possible while interest rates are low and build a redraw facility to cover any increases in the event of a rate rise.
- Monitor the market and watch out for signs of change. Read real estate news from trusted sources and pay attention to the warnings. If you’re anxious about the value of your property in the event of a bubble burst, you may be able to sell before prices fall.
- If you are an investor, don’t become too greedy. Staying in a red hot market can be dangerous and risky. When a market drops, it can happen quickly with potential huge financial losses.
- If you are investing in property through a self-managed super fund, make sure the property you buy is not the only asset in your portfolio.
- Make sure you have appropriate insurances in place in the event of a market downturn. For example, landlord insurance for rental property owners and income protection in the event of job loss. Financial protection in can prevent you being forced to sell at a loss.
About the Author
Logan Insurance Brokers are based in Sydney and insure customers in New South Wales, Queensland, Victoria and South Australia. We offer quotes and comparisons in NSW, VIC, SA, QLD with annual reviews of definitions and costs.
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