With an already ‘booming’ market heavily inflated by both local and overseas investors, Australian house prices are at risk of potentially falling in value in conditions continue as they are.
The RBA has warned that interest-only loans may be a contributing factor to the burgeoning property market as they produce the added risk of creating larger debt for households than otherwise by failing to chip away at the loan’s principal.
“The heightened level of investor activity and borrowing could amplify the housing price cycle and increase the risk of significant price falls later,” the RBA warned.
“The growing prevalence of interest-only lending might also increasing households’ vulnerability, since borrowers can pay down their loans more slowly than required under conventional principal and interest loans.”
What else is contributing to these prevailing conditions?
According to The Financial Stability Review, historically low interest rates have also helped increase overall housing demand and heightened the chances of a property oversupply.
Where do we need to look out?
In Melbourne, an oversupply of high-rise apartment construction has dominated the CBD as well as some inner ring suburbs including South Melbourne, Docklands, St Kilda, Carlton & South Yarra.
In Brisbane, there’s been an increase in higher density dwelling approvals and vacancy rates have also risen, causing rents to slow, in the CBD and immediate inner ring suburbs.
Whilst in NSW, approvals have shot up by almost 150% in the past three years alone!
However, it’s not all doom and gloom!
Whilst there is cause for concern in particular markets and specific locations, these potentially ‘catastrophic’ conditions can be avoided, and growth can be achieved, if the right research is employed.
In other words, not all markets and locations are set to experience the above-mentioned conditions. Rather, as a general note, these conditions are more likely to affect CBD locations in oversupplied markets such as Melbourne, Brisbane and Sydney, as well as those suburbs with high levels of construction and saturated developments such as the inner ring suburbs within that 0-5km radius.
Fortunately, this is exactly what we look out for, and is exactly the reason we avoid these locations!