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  • Hey this is Ryan from Onproperty.com.au and today I'm answering your questions and today

  • we are talking about will the Australian Property Bubble burst?

  • I've got an email from bingo asking me, Hi Ryan, people seem to think that property can

  • only go up, but looking at the US and EU , I would say not. Do you think the GFC or the

  • property bubble will affect us in Australia? Cheers Ben. I wonder why it says bingo on

  • my email? Anyways bingo or Ben, it's a very great great question and there's a lot to

  • it to say whether or not the property bubble is going to burst or whether properties are

  • going to continue to grow in value. Australia is noted as one of the most unaffordable

  • places to live compared to peoples incomes, the price of the house is exceedingly high.

  • So does that mean that the property bubble is going to burst and that prices will fall?

  • Well people overseas who speculate on the Australian market think that it will fall.

  • Places like the US or the UK have all had their bubbles burst and they were in the same

  • unaffordable range that Australia is today. But Australia is different to other markets

  • across the world and there are some factors that you may need to look at to think whether

  • or not the bubble is going to burst. So in order for a bubble to burst you need to have

  • a great deal of people willing to sell their houses at fire-sale rates and you need to

  • have a market that is unwilling to buy those houses. So you've got this flooding of the

  • market of properties or people just wanting to get rid of them and sell them no matter

  • what the cost and then you've got a whole bunch of buyers on the market who don't really

  • want to buy the properties and so that has to take place.

  • A difference that's important to note between us and the US, is that when you borrow money

  • for a house in the US or back in when this did happen I don't know if they have changed

  • things, if you decided that you couldn't afford your mortgage, and you're going to default

  • on that loan and you then handed the house back to the bank. If the bank sold the house

  • and there was a deficit, let's say you purchased the house for $500,000, gave it back to the

  • bank. They could only sell it for $300,000 and there is that $200,000 deficit in your

  • loan, let's say you've got a 100% loan. In the US in a lot of cases, the banks would

  • actually have to wear that $200,000 cost, however, with most loans in Australia it works

  • differently. If you have a $500,000 mortgage you default and give your house back to the

  • bank and they can only sell it for $300,000, that $200,000 debt still gets assigned to

  • you and so I would say that there's going to be a lot more responsibility in the Australian

  • market compared to the US market, because if I knew that I purchased a house and it

  • was below what I paid for it and I could just ditch it, and I wouldn't have to think about

  • it, I wouldn't have any of that debt; well I'm probably more likely to do that, than

  • in Australia if I ditch it, then I'm still going to have all this overarching debt and

  • I won't even have a property to show for it. So, will it crash, will it not, there's just

  • too many factors to say whether it will or it won't. But Michael Yardney, I was reading,

  • I was actually doing some research on this, and Michael Yardney who is very well known,

  • he's a director at Metropole Property Strategists, he was stated saying, 'For property market

  • to crash you need desperate sellers willing to give away their properties at fire-sale

  • prices and no one willing to buy them,' which is what we talked about and he says, 'what's

  • different is that you need one or more of four things to happen none of which is on

  • the horizon, a major depression,' well we just kind of been through the great recession,

  • so are we coming up for a major depression? Probably not, 'You need massive unemployment,

  • you need exceedingly high interest rates,' you know in Australia interest rates are so

  • low at the moment, five percent (5%), I've seen interest rates below five percent (5%),'

  • all you need an excessive oversupply of properties.' Something interesting about the Australian

  • market is that the government does limit what land is available to develop on. So in a lot

  • of areas the land is extremely restricted. Take Sydney for example, you've got the water

  • on one side so obviously you can't build a house on the water and then you've got all

  • these national parks surrounding it. There are national park areas, state parks to the

  • north, there's a big national park to the south and then you got the Blue Mountain ranges

  • to the west. So Sydney is pretty boxed in, in where it can grow and what land there is

  • able to build upon and so when you've got a lot of people wanting to live in an area

  • the government's not releasing land for people to build upon and forcing people to build

  • more high-density properties, we kind of see an area where the supply is not keeping up

  • with demand, so there's more and more demand for properties and due to developments and

  • whatever reason there's not enough supply entering the market to fill that demand.

  • So if it did come to a point where there was much greater supply than there was demand,

  • then definitely prices could go down, could there be correction because of the great increase

  • in the growth that was seen? Yes, there could be a correction or there could be a stabling

  • off of the overall market in Australia, but does that mean that it's a bubble that's going

  • to burst and prices are going to decrease fifty percent (50%) like some of these overseas

  • analysts are predicting. I think property prices aren't in a bubble in Australia, but

  • that is due to my limited belief of what the market is and the things that control the

  • market. Obviously there's so much that goes into economics at such a great scale. But

  • I hope that answers your question Ben, I hope that helped you and if you want your question

  • answered then go to OnProperty.com.au/contact and send me your question or you can just

  • email me ryan@onproperty.com.au. So until tomorrow when I answer another reader's question,

  • remember that your long term success is only achieved one day at a time.

Hey this is Ryan from Onproperty.com.au and today I'm answering your questions and today

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Will The Australian Property Bubble Burst? (Ep210)

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    ben posted on 2016/06/03
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