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Low Supply and High Demand in Australia Causes Property Prices to Rise - 23 March 2010

Having weathered the recession rather gracefully, Australia’s property market is in an advantageous position: A lack of supply has caused home prices to increase, while demand is also high since banks refused to fund new developments in the last few years.

Before going into the recession, listed property trusts (LPTs) had raised billions of dollars to strengthen their position to invest in Australia, but then the global economy tanked and construction in the country came to halt. Now, with overseas investors more confident to invest again, an influx of money has entered a country with too little properties buy, experts say.

Construction is finally starting to pick up in Australia, though still not enough to stay consistent with demand. In December of last year, sales of newly built properties doubled from a year earlier, whereas sales of already existing homes only experienced a 40 percent increase. Experts say the drastic difference between the two property types may have also been driven by the first homebuyers’ grant, which favoured purchases of new properties.

Australia’s optimistic supply-and-demand seesaw is not without a few casualties however. The rising value of homes—4.8 percent nationally last year—has also caused interest rates to rise, leaving about 16 percent of property owners struggling to pay their mortgage.

Experts predict Australian property prices to rise by 10 percent this year with the market in Melbourne being especially strong. This January marked the highest number of sales in Victoria’s capital than any other opening month in seven years.

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