false property boom could come crashing down

Milanda Rout | July 27, 2009
Article from: The Australian
ANGUS Bissland thought he would have a relatively easy time buying his first home after working in Britain and the US and witnessing the impact of the global financial crisis.

But the 30-year-old, who works in finance, could not believe the state of the property market when he got home.

He thinks the combination of low interest rates, the first-home buyer grants and people still borrowing more than they can afford has created a false property boom that could come crashing down.

As Kevin Rudd warns of higher interest rates, Mr Bissland says he is concerned about buying in Melbourne at the height of what he calls a "false economy" and then seeing the market decline because of the impact of any rate rises.

"Melbourne is the only market in the world that is going up," he said. "The city is a great place to live, but that is still a real concern for me."

Mr Bissland and his partner, Saskia Hammond, have been looking for five months for a house in Melbourne's inner south and bayside suburbs. They hope to spend about $600,000.

"It's just madness at the moment," he said of the city's record 87 per cent clearance rates for the year.

Mr Bissland said the first-home buyers grant was artificially pushing house prices up and he was worried about the impact on the market when it ends.

"I call it the first-home sellers grant," he said. "It has led to a real sellers market and that is something of a false economy. It has pushed houses that used to be $500,000 over $500,000."

Mr Bissland said the low interest rates also meant more people who could not afford to take large mortgages were doing so to get into the property market.