Will Australian Property Stand Up to the Economic Storm?

The storm clouds are getting darker for the world’s and Australia’s economy. In these uncertain times does the old standby of “you can’t go wrong in bricks and mortar” still hold true?
The Americans, British and Bulgarian property owners have seen that you can go very wrong with property. As with any commodity in over-supply, if there is too much supply and not enough demand the price will go down. In California house prices have dropped over 40% in 12 months. Australian’s are watching their share market follow Wall Street down, down, down, and wonder if their property values will be next to head south.

Well the good news is, according to the experts, probably not. The ratio of median house price to incomes have risen in Australia to be one of the highest in the English-speaking economies. Despite this though Liam O’Hara, senior economist at Australian Property Monitors, does not think that Australia will see prices drops of the scale seen overseas. As O’Hara says:

the main reason is that whereas the US has a heavily oversupplied housing market, Australia’s is still, under supplied. Australia has been under supplying housing demand for some time, and that’s helping to maintain prices. If that under supply, weren’t the case, I suspect that we’d be seeing some more major movements in the market.

The main reason that Australian property markets won’t collapse is quite simple: immigration, which is driving population growth even more than the baby bonus. Australia added 332,000 people to its population in 2007, the largest increase in history. The Treasury estimates that this amount of growth requires 200,000 new dwellings. The construction figures for the same period was around 157,000 leaving a 21% shortfall.

RP Data, a property research firm, confirms that combination of increased demand and low supply will make sure that there is no California-sized property price falls in Australia.

On top of the continued population growth we also have the rapidly dropping interest rates and the increased first home owner’s grants is also increasing demand from those previously priced out of the market. There are bargains to be had but don’t wait for the 40% drop in prices before you enter the market, you may wait for a long, long time: or maybe you should check out Bulgarian property?

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