Australian Property prices have always been on peak despite the availability of land. Cast an eye over this article to know about the factors contributing to Australian property’s high rates.
There are a lot of factors that contribute to the high prices of real estate in Australia. Most Australians believe that homes are the ultimate and accurate form of investment.
Australian Property Market has witnessed a real price increase every year since the 1890s. All the major cities of Australia have seen a significant increase in the prices of property. Sydney and Melbourne experienced a massive increase in housing prices since 2009. These substantial price increases are despite the low wage growth and low-interest rates and have resulted in increased housing debts.
Property valuation done by experts indicates unsustainable growth in the property market. According to a report, the average price of a property in the major Australian cities is equal to over seven years of average income in Australia which was up to three in the 1950s – 1980s.
Australian Property Bubble
A real estate bubble, also known as Property Bubble, is an economic theory that occurs when the property prices increase rapidly due to several reasons like increase in demand, emotional buying or limited supply. Once the property prices rise, they enter the market and further drive up the demand. This event is known as a property bubble as it will burst at some point of the time.
Since the early 2010s, speculators have claimed that the Australian property market is in a crucial bubble. However, various industry professionals have argued that real estate prices are growing in line with income growth, and hence it is not a bubble.
Many predictions and theories have been made about the bubble to burst, but nothing like this has happened yet.
Now let us discuss the factors that lead to the price rise of properties in the country.
1. Tax Policy
As per the Reserve Bank of Australia, Australia’s taxation treatment is more favourable to investors than that of the other countries.
Several tax policies impact real estate investments and their prices, including negative gearing, stamp duties, land taxes and the concessional treatment of capital gains. These policies include tax deductions if the loss is incurred on investment properties.
2. Planning Laws
Planning Laws includes several things associated with strategic & statutory town planning, land access, land acquisition and other related areas. The planning laws in Australia are quite restrictive.
This leads to the use of a land rationing system which means to ban the development leaving certain designated areas. If this designated land is insufficient, then the prices of property increase.
3. Banking System
Interest rates and banking policy also cause a significant impact on property prices. As the interest-only loans are readily available, it is feasible for investors to borrow a loan to purchase a property.
This causes the investment demand for property purchase to rise, leading to an increase in houses’ prices.
4. Housing Costs not included in the CPI
The CPI (Consumer Price Index) does not include the housing costs, which means that the cost of living is measured after excluding home purchase costs- thus failing to represent the young Australians.
5. Foreign Investments and Immigration
Since December 2008, the regulations have been loosened up for foreign buyers of Australian Property. This has led to a massive increase in the demand for properties leading to a rise in their prices.
Moreover, an increase in overseas visitors and immigrants has led to the rise in rental properties’ demand. Thus, investors buy the property and then put it on rent to earn a good return.
Impact of Covid-19
Covid-19 has caused an international recession in the global economy, and every industry has witnessed its adverse effects. But even during the current situation of the pandemic, the Real Estate prices are high in Australia. In fact, the major Australian cities have recorded the highest pricing systems during the pandemic.
All in all, those mentioned above are some of the primary factors that result in high property prices in Australia. A few changes in the planning system and taxation policy can definitely help to control these figures.
However, the Australian economy is capable of affording the current rates. If there ever comes a situation of non-sustainable increase, they will decrease the rate of rents and revenues to constrain the investment.
Thank you for reading!