Preston Rowe Paterson . Sydney Australia

There has been an ongoing debate in Australia as to whether the housing market is significantly overvalued and is due for a significant downturn or as some might put it ‘correction’. Reports from the Organisation for Economic and Cooperation Development (OECD) has warned that the Australian housing market bubble is about to burst. The OECD has forecasted that there will be a potential ‘dramatic’ drop in housing prices.

Currently in the property market, there has been growing concerns that an oversupply of apartments in the major cities of Australia will impact the market. The OECD reported that the effects of this oversupply could be ‘dramatic and destabilising’. This will be particularly noticeable in Sydney, Melbourne, Adelaide and Perth.

Banks are tightening credit loans due to major concerns of a higher rate in potential failed settlements. There has recently been a regulatory crackdown by the Australian Securities and Investments Commission (ASIC). ASIC has commenced civil penalty proceedings against some of the major four Australian banks over alleged manipulation of the bank bill swap rate. The rigging of this financial interest rate has been used to price billions of Australian home loans. As a result investment lending has fallen. The tightening of investment lending, coupled with increasing building costs and a drop in the number of Chinese buyers, has local and offshore property developers pulling back or delaying developments in Australia.

Source: Australian Bureau of Statistics; OECD Analytical House Price Database

As shown in the graph above, the spread between the house prices and dwelling approvals has minimised. As reported by the Real Estate Institute of Australia, there was a decrease in the median prices for residential property for the March quarter. The weighted average capital city buy cialis england median price decreased by 1.3% for houses and 1.1% for other dwellings. Over this quarter, Sydney, Brisbane, Perth, Canberra, Hobart and Darwin recorded decreases. When compared to last year, the weighted average capital city prices increased by 3.3%.

It will be interesting to watch the property market over the next 12 months.