Australia's property markets soar, defying rate rise, US sub-prime crisis

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Property prices across the country continued their strong run, despite the higher cost of borrowing and concerns about the impact of the US sub-prime crisis.

The latest numbers from RP Data-Riskmark Hedonic Index showed that Australia's property prices jumped by 7.7% during the first seven months of the year to the end of July. In the 12 months ending the same period, property values across the country grew by 9.2% - beating many forecasters' predictions.

In the rental market, the best yielding cities for investors looking to buy apartments are Canberra with units in the capital city achieving rental yields of 6.5%, followed by Darwin (5.9%), Adelaide (5.4%), Sydney (5%), Brisbane (5%), Melbourne (4.6%) and Perth (3.9%) according to the report.

National unit prices rose by 10.2% in the seven months to 31 July 2007 - well above the house price growth over the same period, which was 6.9%.

Sydney came up trumps as the nation's most expensive housing market with a median house price of $561,199, closely followed by Perth ($508,140), Canberra ($475,554), Brisbane ($424,207), Melbourne ($407,544), Darwin ($385,506) and Adelaide ($365,508).

Despite Perth's house price boom during 2004-06, which was juxtaposed against Sydney and Melbourne's sluggish growth, the tables have now been turned. In the first seven months to 31 July 2007, Perth property prices rose by only 2% while Melbourne and Sydney prices have increased by 10% and 5.7% respectively.

However, Perth has continued to outdo its eastern counterparts with the highest national median unit price of $454,809, followed by Sydney ($412,376), Melbourne ($331,903), Canberra ($306,737), Brisbane ($305,432), Adelaide ($294,275) and Darwin ($290,000).

Interestingly, Adelaide produced the most affordable homes with a median price of $365,508 but also encountered the strongest growth in the 12 months to 31 July 2007 with overall property price increases of 17.2%. Adelaide unit prices also topped the nation with the strongest levels of growth at 27%.

Tim Lawless, RP Data's director of property research, is forecasting a 10% growth in property prices during the eight months to August 2007. "This will deliver gains for those households who own their homes but will also create major affordability challenges for individuals in the rental market," he says.

"As a pure investment class, Australian property markets are pretty much bullet-proof, shrugging off multiple interest rate hikes and the credit liquidity crunch. Yet each capital city is like a separate economy. In order to benefit from this growth, you need to be able to diversify your real estate holdings across the country."

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