Is Australia's Property Market all set to bounce back?
Team Veye | 27-May-2019
With 3 major reasons that could give the much needed push to the Australian Property Market including the banking regulator eased lending criteria, RBA flagging interest rate cuts (The Reserve Bank is expected to cut interest rates when it meets on June 4 and quite possibly again in July) and re-election of the Scott Morrison government saying goodbye to tax changes that could have had a negative impact on the property investments, the reality still appears different from the expectation.
This is despite the fact home buyers should soon be able to borrow more, as the banking regulator APRA is permitting banks to use a lower yardstick to figure out if borrowers can pay money back. In the past, banks used to have to check people would be able to pay off their loan even if mortgage interest rates went up to 7.25%, a figure known as the “Assessment Rate” But, the Treasurer recently approved banks to set a lower assessment rate.
The biggest reason for this is the Demand vs Supply. The situation has reached a level where according to the Reserve Bank, about 5% has been added to the housing stock in Sydney while Melbourne and Brisbane have also seen relatively large additions but who is going to absorb this supply? Nationwide house values are down an average 8% since their 2017 peak and more than 14 per cent in Sydney. With signs that a multi-year jobs boom is running out of steam is another reason which is adding to the slump in the property market. Australia has a weak national economy with poor gross domestic product (GDP) growth, high underemployment, and worsening unemployment.
The situation is so grim that some developers have already put their housing projects on hold to keep a check on the inventory vs the consumption and it is not clear how long will it take before the situation changes. So, the Australian property slump appears far from over and it would be wise as an investor to keep an eye on the developments to be in control of the situation and beware of any potential losses or benefit from any opportunities that come your way.
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