Contrary to debate about a slowdown in the significant rate of property price growth in some Australian cities, HSBC Global Research believes double-digit growth by year’s end is more likely. And that means capital cities like Sydney are at new risk of a property bubble.
HSBC Global Research is floating a price growth of around 10% in the second half of 2014 supported by low mortgage rates.
“Signs of exuberance are most acute in Sydney, where housing prices are already rising at twice the pace of elsewhere and the investor share of market has reached record new highs in recent months,” its research says.
While a slowdown was evident in May, activity in both June and July has shown this was a temporary lull. Auction clearance rates and prices bounced back last month – when combined with low interest rates the potential for excessive risk taking in the housing market is “worrisome,” the research said. “The current pace of housing price growth in Sydney seems likely to be unsustainable. Over the past year, Sydney’s housing prices have risen by 15% year on year, while the weighted average of the other capital cities has increased by only 7% year on year,” it was noted.
So, as an investor, how can you protect yourself from a potential property market crash?
- Seek rental returns. Those who focus on positive cash flows rather than capital gain will come out ahead.
- Don’t rely on negative gearing. The fundamental value of a property is based on income produced, not what prices could be next year or the year after. Gross yields were around 7% during the mid-1990s, falling to 4% today.
- Reduce household debt. Housing prices can only rise so far given the historically high rate of household debts, currently around 110% of GDP as of 2013.
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