While majority of the mortgages in Malaysia are for one property, it is a little different in many more developed markets. The latest one is a focus on Sydney. HSBC Australia’s chief economist said that when interest rates rise again, the property prices in Sydney will fall. In fact it could drop as much as 2016 after the third consecutive strong year forecast for 2015. A warning was also given that for properties, Sydney is at ‘risk of a bubble.’ Current price level of growth in Sydney’s prices are unsustainable and truth will reveal itself once the interest rates begin to rise. The main reason is due to high level of investor demand. In other words, instead of one property, these are bought for investment purpose instead.
Of course, these investors are typically lower risk borrowers because they already have equity in another owner-occupied property and thus would have a lower loan-to-valuation compared to first home buyers.
In Malaysia’s context think along the lines of 10% downpayment for first time buyers and 30% downpayment for owners of more than 2 properties. Which do you think is richer and perhaps lower risk to the bank? I think the answer is clear. However, this is not necessary good because imagine a market where everyone is ‘investing’? Well, prices tend to go up faster because these are the people who would sell higher and later buy even higher. First time home buyers? Well, these tend to stay for a while and investing may not be in their mind in the beginning.
Final conclusion by HSBC is that even though the situation in Sydney is unhealthy but it does not see a national bubble building up. In fact it said that the strong fundamental in Australia continue to be supported by factors such as low housing supply, well allocated housing debt, low urban density and high demand for property. I have no property in Australia and has no intention to buy one in the near future as foreigners are not allowed to buy from their secondary market. Who knows, if the market slows the government may change this requirement? Yes, I am still wishing and hoping. Happy Chinese New Year!
written on 18 Feb 2015
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