Property in Australia less risky than some experts suggest

Property in Australia has been remarkably
resilient to the recent global financial crisis.  Indeed, in early 2011, US consultants Demographia labelled Australia as
the most expensive property market in the world, with homes costing 6.1 times
the average annual income.

Many
experts have therefore predicted that it can only be a matter of time before
the Australian property market crashes.  However,
thanks to strict lending practices and comfortable affordability, a leading
financial journalist believes that property in Australia is more stable than
foreign experts would have you believe.

Property in Australia
unlikely to tumble in value

John Beveridge, writing in the Herald Sun, says that ‘by now Australians are totally accustomed to visiting
gurus telling us our houses are about to crash in value.’  The journalist refers to Harry Dent, an American
economic forecaster who believes that the world is about to undergo a second
crisis and this time Australian property prices will be taken ‘all the way back to where they were
a decade or more ago.’

However, Beveridge gives various
reasons why he believes that a property crash in Australia
is unlikely and that buying property in Australia is still a good deal.

Firstly,
lending practices in Australia
have been ‘more rigorous than many offshore markets’ meaning that there are
less cases of sub-prime borrowers being enticed into the mortgage market when
they have little hope of repaying their debts.

 In addition, Beveridge points to the ‘higher
quality of Australia’s
housing stock, with renovations and extensions naturally adding value.’

Property in Australia remains affordable

The
journalist also believes that the affordability of home loans in Australia is
more comfortable than in other countries. 
Just 2 per cent of outstanding mortgages are to borrowers with a ‘loan
to value’ in excess of 90 per cent and who use more than half their income to
service their mortgage.

Beveridge
says: “About three-quarters of our household debt is held by the top 40 per
cent of income earners with substantial assets. Australians are also commonly
ahead on their mortgage payments and have built up savings in recent years as a
bulwark against adverse economic events.”