Greg Medcraft, the ASIC chairman has warned investors in Melbourne and Sydney of a property bubble.
Based on RBA’s decision to cut rates to 2 per cent, and continued growth, Medcraft has warned investors about buying property in Sydney and
Melbourne, expressing he fears both cities may already be in a housing
bubble. The ASIC head said that, “history shows that people don’t know when they are in a bubble until it’s over,” warning that the correction would also leave SMSF at severe risk.
The property bubble debate has continued for the last 18 months with a 2014 housing market sentiment survey by CoreLogic RP Data and Nine Rewards found that more than two-thirds of Australians believes the property market could suffer a major price correction. The survey asked 1,021 respondents what their expectations were for housing market conditions; with 68%
believing that there may be a correction – the highest reading the survey has received.
With Sydney and Melbourne property markets showing the long-term average income to
average price ratio at historic highs, Medcraft expressed his concern that once rates are so low, there is a danger that, “people start borrowing when they can’t afford it. He believes that ,”what generally happens is rates starts to rise which affects your ability to pay, and rate rises can
actually bust a bubble, so you end up with a double whammy.”