Figures have been released showing that land prices in Australia are on the rise. The increases are largely concentrated in the country’s capital cities, and there was a sharp difference between the increases in capitals and in the country as a whole. The news comes as the property market in Australia attracts attention for price growth that some commentators say signifies a bubble.
At the same time, auction sales are also rising in Australia. According to RP Data spokesperson Robert Larocca, scheduled sales by auction rose by 12% in September 2013, with capital cities seeing most of the action.
Australian land prices have risen sharply, with an average 6% rise across capital cities to a AU$247, 000 median lot price, but in the regions the increase has been negligible, with growth of only 0.6% to a median AU$156, 000 price.
RP Data’s national research director Tim Lawless commented that price growth is being driven by factors including a lack of vacant residential land and an overall reduction in land lot size. ‘The follow-on effect for the housing market has become a key contributor to the rising cost of housing – this is particularly noticeable in capital city markets,’ Mr. lawless said.
That sharp rise focussed on capital cities has some people worried, pointing to the fact that by some measures Australia’s houses are already overpriced. Australian homes are among the world’s most expensive when measured against rents and incomes, key indicators of affordability and of the market’s link with the real economy. The Bank for International Settlements, which acts as a central bank to the central banks of the world’s nations, pointed out that the Australian housing market looked vulnerable to sharp corrections when it released its report earlier this month. For a number of countries, including Australia, the report stated, ‘current property prices are much higher than those implied by the historical relationship to rent,’ and therefore ‘there could be a reason to expect a price correction in the future.’
Across Australia, that process may have already begun. Across the country prices have been flat for the last three years, a blanket view which masks sharp increases in Melbourne and Sydney and drops in prices in the regions.
What’s even more disconcerting is that in the background, China’s economy is grinding slowly to a halt. As that happens, demand for Australia’s key industry, mining, falls too, undermining the real economy even as a wildly out-of-balance housing market struggles to stay on the tightrope. Even in Sydney, where prices have been rising, regulators like the Reserve Bank and the Australian Prudential Regulatory Authority have been letting investors know that ‘they shouldn’t expect house prices to continue to rise,’ according to financial journalist Jonathan Shapiro.
The form that the correction is likely to take is that owner-occupiers will reduce their demand, and that when that happens, investors, many of whom are already jittery, will start to sell.