Australian Property Prices Being Bid Up By Investors

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Despite fears of a looming slowdown, investors continue to gobble up houses in Australia, helping to make the Land Down Under one the top-performing residential markets in the world.

Lending to investors buying home grew by 30 percent in the last year, according to government data. In the first quarter of 2010, lending to buyers who planned to live in their new homes actually dropped by 10 percent, but lending to investors increased by 11 percent, the Sydney Morning Herald reports.

Many investors simply see property as a better risk, analysts say.

''These investors aren't concerned about interest rates,'' BIS Shrapnel analyst Angie Zigomanis told the Sydney Morning Herald. ''They can see prices rising and real estate looks a safer bet than the stock market.''

In its latest Global House Index, released last week, Knight Frank listed Australia as the fourth-best performing market in the world, trailing only China, Hong Kong and Singapore.

Official data from the Australian Bureau of Statistics shows a 20 percent jump in prices in the first quarter of 2010, although Knight Frank believes those numbers may be exaggerated. The firm put the growth at a still-healthy 12 percent, citing low interest rates, first-time buyer incentives and a lagging supply.

But Knight Frank joins skeptics who believe Australia can't sustain the current growth rate.

"With interest rates now rising, the government withdrawing stimulus and the supply response picking up (albeit modestly), we expect house price growth to slow over the next six to nine months," Knight Frank predicts.

The influence of foreign buyers (read: Chinese) has turned into a national debate, leading to a recent tightening of regulations on international purchases. At the same time, several factors are aligning to dampen the market, including an expected interest rate hike and a new rush of home building.

In the first three months of 2010, construction started on more than 42,000 homes, a 4.3 percent increase and the biggest quarterly jump in six years.

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