Canberra dismisses bubble fears as Australian property boom continues despite Covid-19 pandemic
SYDNEY – When the Covid-19 pandemic landed in Australia early last year, analysts expected the nation’s booming property market to finally cool and predicted a national price dip of as much as 30 per cent.
But, once again, the Australian property market is defying the naysayers, as average prices increased last month at their fastest pace in over 30 years.
Record low interest rates have fuelled the surge in prices, which increased by 2.8 per cent nationally in March – the highest level since 1988. Aside from inner-city apartments in some state capitals, which have been hit by the absence of international students, prices have increased virtually everywhere, from cities to regional areas.
Prices in Sydney and Melbourne were up 6.7 per cent and 4.9 per cent respectively in the last three months, according to property data firm CoreLogic. Unusually, regional areas (up 6.3 per cent) saw bigger rises than capital cities (up 5.6 per cent) as the work-from-home phenomenon prompted a rush away from city living towards quieter, more affordable areas.
The runaway market has prompted calls for the federal government to step in to assist first home buyers and ensure that debt-laden home owners are not taking on risky loans.
Some analysts have suggested that Australia should follow the lead of New Zealand, which recently intervened with controversial measures to cool its booming market. In the past year, New Zealand experienced a 22 per cent increase in average prices. In the capital Wellington, prices were up 29 per cent.
Responding to the surge, New Zealand Prime Minister Jacinda Ardern introduced measures to avoid a “dangerous housing bubble”, including stemming tax breaks for investors.
To avoid paying taxes when selling their property, investors will need to hold it for 10 years rather than five years. Tax deductions for investors will also be scaled back.
Some analysts said the moves could jolt the market, which would damage consumer and business confidence. Others praised the measures as a way to engineer a sustainable slowdown.
New Zealand’s raft of measures has added to calls in Australia for the federal government or regulators to step in amid soaring prices.
ANZ Bank economist Felicity Emmett said the bank is predicting that prices in Australia would be up by about 17 per cent by the end of the year.
She said the banking regulator, the Australian Prudential Regulation Authority (Apra), may need to impose curbs on lending practices.
“Previously, they’ve introduced caps on investor lending and on interest-only lending, so that’s a possibility,” she told ABC News.
But Apra chairman Wayne Byres recently suggested that current lending practices did not appear to be excessively risky.
He also noted that the regulator’s role was to supervise the banks and promote financial stability, telling a parliamentary committee: “It’s not our job to solve house pricing affordability.”
Australia’s central bank, the Reserve Bank, said on Friday (April 9) that the housing market was “being watched closely by regulatory authorities”. It said it was monitoring the risk of excessive borrowing.
“Persistent increases in asset prices could lead to expectations that rises will continue and so increase risk-taking and borrowing, especially given low interest rates,” it said.
The surge in prices is taking place amid stagnant wages and a rise in unemployment in the past year. In addition, travel curbs have prevented the usual influx of migrants, who tend to boost economic activity and add to demand for housing.
But Australia has effectively tackled the Covid-19 outbreak and its economy has recovered quicker than expected.
The main cause of the boom appears to be low interest rates, along with a claim by the Reserve Bank that rates will remain low for at least the next three years.
In addition, some people have saved money during the pandemic due to government stimulus measures and lower travel and entertainment expenses on the back of public health restrictions. But another cause is that many home owners are not selling.
The number of homes being listed for sale is more than 25 per cent below usual levels.
However, record auction clearance rates – and the frenzied pace of sales – suggests that demand will continue to match supply, even as vaccination roll-outs ease Covid-19 fears and sellers eventually emerge.
Join ST’s Telegram channel here and get the latest breaking news delivered to you.
Source: Read Full Article