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Investment property: property bubble existance in Australia

July 22, 2013 6:41 pm
posted by James Parnwell
property bubble

Property Bubble

Google ‘Australian property’ and the first websites to appear will discuss the idea of a property bubble in Australia.  The property bubble speculates that Australian property prices may currently be higher than their worth due to housing becoming an investment tool.

Property professionals around the country say different things. While some property analysts will agree with comments that Australia may be the biggest property bubble in world and will “burst in spectacular style” (wikipedia), others say housing prices are true to their value.

Economic bubbles are normal in global economic history and occur periodically depending on the speed that housing prices increase or decline in value.

A property bubble will burst when factors that would normally determine value such as wages and taxes change dramatically.

Using property as an investment tool doesn’t affect the market or put it into a bubble. Investing is infact helping to build the economy and helping to deal with the lack of housing through providing options to rent. Investing remains a great way to build wealth in Australia, because there is a need for more property and people are still willing to pay the prices asked.

Australia and America Property Bubble Comparison

Because of the supply and demand affecting Australia’s property market, Australia isn’t facing a property crisis like our friends in the United States of America.

Sydney, in particular, is currently facing an ‘undersupply’ meaning there are more people in need of housing than is available. This keeps the value of property prices in the country true because when a property goes on the market, it sells.

CPI pay rises make housing prices still affordable in Australia. In comparison to the USA, where the banks gave credit to people that couldn’t afford housing on a massive scale then when the property market burst there was a huge oversupply and overpricing of housing, our economy is stable and banks are only giving loans to those who can afford it.

According to a blog by ‘Who Crashed The Economy’ (http://www.whocrashedtheeconomy.com/blog/category/australian-housing/) ‘unaffordability’ in housing is a real issue for Australians so much so that if the government tends to it, it could determine the result of the election.

If this was the case, the Government would only offer housing grants, which would lead to a similar crash to the US.

Instead, ‘Who Crashed The Economy’ argue that we are in a property bubble that is too big to bust meaning that property will continue to become more and more unaffordable and eventually nose dive into a significant recession. So far, our government has managed to avoid the most recent Global Recession better than any developed country in the world.

As long as lending doesn’t exceed what people can afford and the population continues to grow at a rate that demands more housing be built, we are in no danger of an economy collapse.

 

Written by Jordan Cox and James Parnwell.

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