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Australian house prices highly overvalued: The Economist

Friday, March 4, 2011 8:08 PM

CANBERRA, Mar. 5, 2011 (Xinhua News Agency) -- Australian houses remain the most overvalued in the world, ahead of Hong Kong region and France, giving fresh life to the debate over whether the nation's housing market is a bubble, The Economist magazine showed on Saturday.

The latest quarterly index of global house prices published in the magazine showed Australian housing is over-priced by 56 percent.

In Hong Kong, the second most overvalued market, housing is over-priced by 54 percent, followed by France at 48 percent.

The property prices of the United States experienced a hefty decline during the global financial crisis, house prices to rents are overvalued by only three percent.

While the magazine said the local economy was strong, its index may renew fears of a house price bubble in Australia.

"There may be good reasons for Australian prices to have risen so far but people made similar, and ultimately incorrect, arguments for the run-up in prices in the West," Andrew Palmer, the author of The Economist's special report said in the report.

The report also suggested the best way to limit the damage from a property bust is for regulators to exercise direct control over the amount of debt available to property owners and developers.

Gerard Minack, Morgan Stanley (NYSE:MS) global strategist, has been arguing the case for some time and he said a bubble has started to inflate in the late 1990s.

"We've had 20 years where the Australian consumers have been willing to borrow more to buy an asset that they believe always goes up in value -- the classic sign of an asset bubble," he told ABC News on Saturday.

"You buy it because it's going up and you don't take account of the underlying fundamentals such as the rental return or the price relative to average income."

Meanwhile, AMP Capital Partners economist Shane Oliver said The Economist had been predicting the collapse of the Australian property market for about eight years, "and it hasn't collapsed yet."

It is hard to see what will trigger it, Oliver said, adding that continued strong immigration and an under-supply of housing had kept the market afloat.

"If the mining boom came to an end and lots of people lost their jobs and couldn't serve their mortgages, that would be a trigger (for house prices to fall)," he told Herald Sun on Saturday.

Vianova Asset Management investment manager Michael Schneider said there were risks to the local market from the unstable economies in the U.S. and Europe, which could raise the cost of capital and impact mortgages.

(Source: )
(Source: Quotemedia)


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