02-04-2011, 06:12 AM
Sounds like the same problem in Singapore as well? 
Apr 2, 2011
Bubble fears grip Aussie homeowners
Prices have doubled since 1997 due to low interest rates
By Jonathan Pearlman, For The Straits Times
SYDNEY: Australian homeowners have been spooked by growing talk of a property bubble after more than a decade of soaring prices.
House prices in this country have more than doubled since 1997, mainly because of a sharp drop in interest rates.
Concerns about a property bubble were fuelled after a survey in The Economist magazine last month said home prices here were the most overvalued in the world. It found that Australian properties were overvalued by 56.4 per cent, followed by Hong Kong's at 53.7 per cent.
The survey, by the Economist Intelligence Unit, was based on a comparison of rental returns to property values. Some economists have also raised concerns about the sharp rises in Australian property prices relative to increases in wages.
A global strategist at Morgan Stanley, Mr Gerard Minack, said Australia was showing the 'classic' signs of an asset bubble.
'We've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value. The classic sign of an asset bubble. You buy it because it's going up and you don't take account of the underlying fundamentals such as the rental return or the price relative to average income,' he told broadcaster ABC.
But economists are staunchly divided over whether there is a bubble.
Critics said the survey by The Economist was based on a comparison of rental returns to house prices. This comparison is problematic in Australia, where the tax system tends to encourage people to seek capital gains rather than rental income.
Economists who dismiss the bubble claims tend to rely on two main pieces of evidence. First, the soaring home prices have followed historically low interest rates. Second, the continual deregulation of the financial sector has allowed banks to lend more against personal incomes.
The 'no bubble' group also notes that the mining boom has pumped cash into the economy and led to higher prices, while strong immigration and a lack of housing stock have kept demand high.
Reserve Bank governor Glenn Stevens told reporters last month that the country's high property prices were 'not top of my list of worries'.
'I don't think we have huge rises going on,' he said. 'We've got quite modest growth in housing credit now for the past year or more. That all seems to me to be consistent with a household sector that's being more careful and has properly observed what has happened in other parts of the world.'
But, as he pointed out, the bigger problem in Australia has been 'social'. In particular, high property prices have raised concerns about housing affordability and the difficulties faced by young families and first-time buyers.
The government has tried several schemes, including tax waivers, to help first-time home buyers, but the schemes have done little to help those facing continually spiralling prices.
A report released this week found that even houses on the outer fringes of major cities - the 'last bastion' for first home buyers - are now out of reach.
For instance, 90 per cent of outer Melbourne properties are worth more than A$200,000 (S$261,500) - the industry cut-off for an affordable price - compared with 26 per cent two years ago.
The affordability crisis prompted an online campaign this week calling for a 'buyers' strike' and urging first-timers not to bid at auctions. Thousands supported the petition launched by a group called Prosper Australia.
According to a survey released by Western Australia-based bank Bankwest, teachers, nurses and police officers are looking at property prices more than five times their earnings in 84 per cent of Sydney suburbs.
'These are the essential workers we rely on every day to provide important services and they face the possibility of being priced out of housing in the communities in which they serve,' said the chief executive of Bankwest, Mr Ian Corfield.
However, there has been some good news for hapless non-property owners: Recent interest rate rises have apparently started to dampen prices.
For many, the dip will have to continue for some time before they make their first offers. The gradual decline, however, may also soothe the concerns of those who fear that a bubble is about to burst.
jonathanmpearlman@gmail.com
Apr 2, 2011
Bubble fears grip Aussie homeowners
Prices have doubled since 1997 due to low interest rates
By Jonathan Pearlman, For The Straits Times
SYDNEY: Australian homeowners have been spooked by growing talk of a property bubble after more than a decade of soaring prices.
House prices in this country have more than doubled since 1997, mainly because of a sharp drop in interest rates.
Concerns about a property bubble were fuelled after a survey in The Economist magazine last month said home prices here were the most overvalued in the world. It found that Australian properties were overvalued by 56.4 per cent, followed by Hong Kong's at 53.7 per cent.
The survey, by the Economist Intelligence Unit, was based on a comparison of rental returns to property values. Some economists have also raised concerns about the sharp rises in Australian property prices relative to increases in wages.
A global strategist at Morgan Stanley, Mr Gerard Minack, said Australia was showing the 'classic' signs of an asset bubble.
'We've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value. The classic sign of an asset bubble. You buy it because it's going up and you don't take account of the underlying fundamentals such as the rental return or the price relative to average income,' he told broadcaster ABC.
But economists are staunchly divided over whether there is a bubble.
Critics said the survey by The Economist was based on a comparison of rental returns to house prices. This comparison is problematic in Australia, where the tax system tends to encourage people to seek capital gains rather than rental income.
Economists who dismiss the bubble claims tend to rely on two main pieces of evidence. First, the soaring home prices have followed historically low interest rates. Second, the continual deregulation of the financial sector has allowed banks to lend more against personal incomes.
The 'no bubble' group also notes that the mining boom has pumped cash into the economy and led to higher prices, while strong immigration and a lack of housing stock have kept demand high.
Reserve Bank governor Glenn Stevens told reporters last month that the country's high property prices were 'not top of my list of worries'.
'I don't think we have huge rises going on,' he said. 'We've got quite modest growth in housing credit now for the past year or more. That all seems to me to be consistent with a household sector that's being more careful and has properly observed what has happened in other parts of the world.'
But, as he pointed out, the bigger problem in Australia has been 'social'. In particular, high property prices have raised concerns about housing affordability and the difficulties faced by young families and first-time buyers.
The government has tried several schemes, including tax waivers, to help first-time home buyers, but the schemes have done little to help those facing continually spiralling prices.
A report released this week found that even houses on the outer fringes of major cities - the 'last bastion' for first home buyers - are now out of reach.
For instance, 90 per cent of outer Melbourne properties are worth more than A$200,000 (S$261,500) - the industry cut-off for an affordable price - compared with 26 per cent two years ago.
The affordability crisis prompted an online campaign this week calling for a 'buyers' strike' and urging first-timers not to bid at auctions. Thousands supported the petition launched by a group called Prosper Australia.
According to a survey released by Western Australia-based bank Bankwest, teachers, nurses and police officers are looking at property prices more than five times their earnings in 84 per cent of Sydney suburbs.
'These are the essential workers we rely on every day to provide important services and they face the possibility of being priced out of housing in the communities in which they serve,' said the chief executive of Bankwest, Mr Ian Corfield.
However, there has been some good news for hapless non-property owners: Recent interest rate rises have apparently started to dampen prices.
For many, the dip will have to continue for some time before they make their first offers. The gradual decline, however, may also soothe the concerns of those who fear that a bubble is about to burst.
jonathanmpearlman@gmail.com