Is it possible to have a boom and crisis at the same time?
Well, yes, and that is what Australia is currently experiencing in the property industry.
You only need to read the headlines with such stories as “Record Bidding”, “Hot Auctions”, to see that the property market is once again red hot.
With such record-setting, red-hot fever, however, comes concerns.
The issue of affordability equally makes the headlines, particularly with the Reserve Bank of Australia having increased interest rates the last five out of six times that they have met and building approvals either stagnant or declining.
Additionally, government incentives such as tax deductions for investment properties (currently amounting to $8 billion per annum) and first home buyers grants, whilst attractive to the individual, are more a poisoned chalice that only add to the in-balance.
The recent announcement by Prime Minister Kevin Rudd that a $50 million investment in housing-related infrastructure is welcomed news. It will, for instance, bring more than 7000 lots forward between six and 14 months faster than was previously planned. But with Australia faxing a housing shortfall of 466,000 homes by 2020 according to the Housing Industry Association, and with news that wages in NSW are only growing by 5.4% per annum whilst property prices are set to double over the next decade, clearly something’s got to give.
Robin Bowerman of Vanguard Investments recently stated,
“Clearly our housing market has a couple of distorting factors at work. First there is the simple supply and demand situation – slow development/release of land around our major cities creates price demand for existing dwellings. Our migration intake has added to the demand pressure while our tax system continues to subsidise property investment.”
The optimism of the Australian public is quite outstanding, and positive consumer sentiment is a hugely important factor for the continued growth of any economy, however, we must be careful not to buy into the mentality that one must get into the market, at whatever cost, before it’s too late.