High property values and an increase in interest rates are key ingredients for causing a property bubble. The IMF in an official publication stated that there is no need to worry as it doesn’t see the property market boom as an impairment to the country’s economic recovery.
The high property values according to IMF are only isolated to key capital cities such as Melbourne and Sydney and with the record low interest rates, these values are kept in balance.
What the IMF is warning the Australian property market about, is to keep an open mind and create contingency plans in case a housing crash does occur. Home loans should also be analyzed as there could be long term effects to high Loan to Value ratios, with lenders approving as much as 95% of the property value with minimum deposits. These can definitely entice people to loan for property, but considerations should also be made in case interest rates start to increase. This is another point to consider, as the Reserved Bank is tasked of not increasing interest rates rapidly as this could result to a high currency value that will negatively impact exporters.
Read more about this on the Wall Street Journal Blogs website.