The down grading of Australian banks is conformation Australia has a credit bubble. Melbourne housing prices are overheated with wooden boxes selling for $1.5 million. Melbourne has 3000 surplus apartments being built each year.
In blue chip suburbs rent for million dollar properties are between 1.5 to 2.5% return on investment. When interest rates rise in the US, the Australian banks will need to provide larger returns on investment by raising interest rates. This will result in pressure on home owners to sell. If Australian banks don't follow US rates, Australian and foreign investment will go offshore and cause a funding shortfall for Australian banks.
Melbourne's apartment boom will result in large ghettos. This is what happened in London with public housing. When the economy falls into recession the owners will not be about to pay strata fees and the buildings will devalue as they fall into disrepair. Melbourne apartments will become like public housing in London. The effect will result in devaluation of prestige suburbs and increased crime.
Australian developers are selling defective apartments to Chinese which will also effect housing prices as China loses confidence in the housing market.
