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Price rises in Australia - 30 November 2009

The Reserve Bank of Australia is predicted to raise interest rates after the latest property price index showed a huge 3.7 per cent rise in property prices for the third quarter of 2009.

Prices of residential property in Australia are now at a six year high as the country has escaped the worst of the global economic crisis, and even a decrease in first time buyer grants has failed so far to have an impact.

According to experts the number of first time buyers has fallen, this has been offset by an increase in property investment in general.

The latest figures from research group Australian Property Monitors shows that Melbourne has the fastest growing real estate sector with prices rising 6.1 per cent in the third quarter of the year, the fastest quarterly increase since 2003.

The average house price in Melbourne was AU$487,249, compared with AU$437,560 in September last year and the city’s average house price has now risen 11.4 per cent during the last 12 months.

Hobart saw the second highest rise, up 5.4 per cent for the quarter, followed by Canberra and Sydney.

The rise in national house prices was led by explosive growth in the more expensive suburbs, which had started in capital cities and spread to the rest of the country, APM economist Matthew Bell said.

Prices in Sydney’s eastern suburbs and lower north shore had been rising since June while prices in some expensive suburbs, such as Point Piper and Bronte in Sydney, had taken the hardest hit, falling by up to 30 per cent since 2007, he added.

Some experts are warning that the upturn in the market is not sustainable as it is not underpinned by first time buyers.

The rise in prices in the first home segment of the market started to slow in the September quarter.

Much of this is due to the decrease in first home buyer’s grants in September and rising mortgage rates, but Bell said that so far this has been offset by real estate investors who have been tempted to buy by strong rental yields and the prospect of future capital gains.

He expects this trend to continue into early next year.

But the record rise in property prices is expected to prompt The Reserve Bank of Australia, whose policy making board meets later this week, to put up interest rates.

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