As an island of property boom in a global sea of downturn, Australia faces a dubious dilemma with Melbourne and Sydney leading another big monthly gain in housing prices. While this boom threatens housing affordability, price increases could also stimulate lending and construction, helping fill the supply side of the equation. For more on this, see the following article from Property Wire.
Residential property prices in Australia are continuing to surge as the Royal Bank of Australia warns that the real estate market is about to explode.
The latest price index from RP Data shows house prices rose 1.9% in August, the largest monthly movement since the group’s indexes began in January 2005.
Melbourne and Sydney recorded the biggest jumps in August, up 2.67% and 2.09% respectively. Australia’s two biggest capital cities have also outpaced the rest of the nation this year, with Melbourne prices rising 11.6% and Sydney up 8.67% in the first eight months of 2009.
Overall, Australian house prices are up 7.9% in the same period.
Darwin was the only capital city to record negative growth in August, with prices falling 0.8% followed by Perth was next lowest, with growth of just 0.65%.
But RBA economist Tony Richards is concerned that strong growth could seriously affect affordability and the bank is expected to become the first central bank in the world to raise interest rates.
‘It is looking increasingly clear that Australia has avoided the large falls in housing prices seen in some other countries over the past two years or so. But looking forward, the risk is that we might move towards undesirable strong growth in housing prices,’ Richards said.
RP Data research director Tim Lawless said there is also a positive outlook as the growth in prices would help ease availability to credit and increase supply.
‘This price growth will also go a long way to comforting risk-averse lenders to start providing credit again to developers, which has been one of the main bottlenecks on the supply side,’ he said.
‘And it will stimulate the reallocation of resources away from other sectors of the economy into much needed housing investment,’ he added.
Finance is much needed according to various experts. New construction will be hampered by financing constraints, according to investment bank JPMorgan’s chief economist, Stephen Walters.
David Devine, managing director of Queensland-based residential developer Devine, said it was nearly impossible to secure funding from the banks for apartment and unit projects, irrespective of pre-sales.
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