Looks like there’s trouble in paradise. If economists have it right, Australia’s current property boom which has zoomed 11% so far this year, could be coming to an end.
Investors looking for a good deal have helped push the value of residential property to half a trillion dollars and banks have reported that more than half of new home loan approvals have been for speculative investment purposes.
Over the last few months, the Reserve Bank of Australia (RBA) has expressed concern that an unexpected pullback in the amount of investment property could generate a sharp housing correction. With much of Australia’s economy tied up in property wealth, this withdrawal could trigger a more widespread economic reaction.
No Interest Rise Expected
The RBA, however, isn't expected to take any action at Tuesday's policy review although factors on the ground should bring a degree of change.
A representative at Goldman Sachs reported on Monday that, "While momentum in the housing market continues to take effect, we expect that going forward, record low rental yields accompanied by macro prudential policies targeted at investor lending are likely to provide a test for housing demand, particularly from investors."
Some see the lower demand by investors as the only—albeit sluggish-- way to bring down the red hot Aussie property market. However, some analysts such as Shane Oliver, head of investment strategy and chief economist at AMP Capital, believe that the only event that could have a significant impact on bringing down prices would be for the RBA to speedily increase interest rates well above the current 2 percent level.
