Promising Property Investment in Australia

Australia’s central bank, the Reserve Bank, Australia (RBA) has expressed its confidence in the country’s property investment market. RBA Deputy Governor, Ric Battellino, said that house prices will hold up better than many of those around the world, mainly thanks to the quality of loans which underpin the market. Battellino told the Urban Development Institute of Australia, “There are a number of reasons…but perhaps the most important is that we did not have the same deterioration in lending standards that occurred elsewhere.”

There have been fewer loan defaults in the Australian market than in many of the other rich economies and the majority of those who took out housing loans have been able to afford the repayments. Battellino commented that in spite of the slumping economy, the 90-day arrears rate on housing loans is still low at only 0.5% - well under that of countries like the US and Britain.

This has had a positive effect on the Australian house prices which only dropped by 3% in 2008, compared to much larger falls of 20% which have been seen in the UK and US markets. Industry analysts say that along with high lending standards, there have been no sub-prime mortgages in Australia, the defining factor behind the economic problems in the US and Australia also has a shortage of available homes, all of which has helped to keep demand high.

Although fears about the economy and job security have slowed home-buying a little, falling lending rates are keeping interest in property relatively high and the Australian Housing Industry Association reported that new home sales in Australia grew by 3.9% in February 2009, the second consecutive monthly increase.

The RBA cut the interest rate from 7.25% to 3.25% in February. Investors and economists are divided over whether the RBA will cut interest rates further when it meets again in April. Battellino said that cuts already made by the RBA mean that costs involved in paying housing loan repayments are not much more than those involved in renting. James Gonzalez, Market Analyst at Obelisk Investment Property, says that unlike many other developed nations, the Australian banking system has remained healthy enough to withstand a reduction in loan rates, which has eased the debt burden for many households as well as making homes more affordable. “The Australian government is handling the economic crisis better than many rich nations and as a result the housing market is holding its own.”