Sydney has one of the most costly real estate marketplaces in the world. Still, Singaporean Julian Choo, who relocated to Australia in 2010, and his Australian-Malaysian wife Joanne Chai were able to purchase their first house there four years ago.
Shortly after their acquisition, the Covid-19 epidemic broke out, and their property’s worth skyrocketed as interest rates hit a new low of 0.1 percent.
The central bank’s promise that interest rates wouldn’t increase until at least 2024 encouraged the pair to make another real estate investment. At the end of 2021, they made a wise investment by purchasing a home close to the future location of Sydney’s second airport.
The couple’s preparations, however, could have gone better.
The Reserve Bank of Australia (RBA) reversed direction and raised interest rates in May 2022 in response to rising inflation. Since then, rates have been increased at each subsequent gathering of the bank’s governing council. The bank raised interest rates last week to 3.6%, the highest level since 2012.
These rate hikes have dealt a devastating financial hit to Mr. Choo and Ms. Chai and thousands of other Australian mortgage borrowers. Mr. Choo has reported that since May 2022, their monthly mortgage obligations have risen by over 60%.
We’re in a debt jail; he told The Straits Times. Like the rest of Australia, we believed the RBA when it said it wouldn’t raise interest rates until 2024. The RBA began increasing interest rates, and they have continued growing them since.
According to Mr. Choo, a mortgage dealer and executive committee member of the Australian Malaysian Singaporean Association, mortgage payments consume more than half of their salaries.
Mr. Choo and his wife, Ms. Chai, an infrastructure project manager, leased out a space in their house on Airbnb to supplement their income. They are contemplating adding a tiny apartment for renters, a “granny flat,” to their investment property.
With the purchase of the second home, “we borrowed up to our necks,” he explained. Like the rest of Australia, we hope the rate hikes are over and keep our fingers crossed for future rate reductions.
Sydney real estate has fallen 13.4% in the past year but is still about 11% greater than before the epidemic.
Although prices have leveled off in recent weeks and are up 0.2% this month, this is primarily due to a lack of available homes as owners wait for the market to improve before selling.
Most experts predict that even after the RBA raises rates to around 4.1%, house values across the country will still decline by about 10%. In the past year, real estate prices across the country fell by about 9 percent.
Dr. Shane Oliver, the company’s top analyst, predicted a further 8% drop in national costs due to the sequence of interest rate increases.
In a conference note last week, he predicted that “the downward pressure on property prices will continue for some time yet,” even if the RBA stops the cash rate shortly.
Many financially-strapped Australian homeowners are in for even more difficult times ahead.
Loan installments for hundreds of thousands of people who recently took out low-interest fixed-rate loans will increase dramatically as they transition to variable-rate loans in the coming months. A$1,400 more must be paid monthly by those with the typical Australian debt of A$600,000 (S$532,500). About 3% of homeowners could be compelled to sell under such circumstances.
Mr. Choo expressed worry about the rising cost of his mortgage payments but expressed faith that the properties would prove to be worthwhile assets in the long run.
“We’re optimistic about the Australian real estate market.” He reassured the crowd that the local financial system was secure and that most property proprietors were long-term residents.
You feel the squeeze when your ability to save is restricted,” he said, adding, “We are optimistic we can keep things going.”
