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Last decades investment surge blamed for mortgage arrear rise

While mortgage arrears in Australia are still relatively low in comparison with many other nations around the world, delinquencies here are nevertheless on the rise.

Although there are numerous factors at play, some experts are pointing the finger at a notable property investment surge in Queensland and Western Australian mining towns, by overseas punters last decade.

A report published in The Australian reveals that a surge of foreign and local investors into the Western Australia and Queensland property markets between 2000 and 2007 is one of the driving forces behind a recent pick-up in mortgage arrears.

In WA and Queensland, 90 day plus repayment delinquencies recently increased to about 0.7 per cent and 0.8 per cent respectively, compared to 2006 figures for WA of 0.1 per cent and Queensland of about 0.2 per cent.

Across the country, the Fitch Dinkum index which tracks delinquencies of more than 30 days, says mortgage arrears reached a record high of 1.79 per cent in the first quarter for 2011, improving slightly in the second quarter to 1.69 per cent.

Last decade’s property boom saw overseas investors start snapping up Aussie real estate in their droves and this, coupled with the mining boom that many local investors profited from, saw a sharp rise in the value of investor loan approvals, particularly in resource rich WA and Queensland.

RBA data shows that between 2000 and 2007, investment loan approval values rose around five-fold in these two states, compared with a three-fold increase for owner occupier loans.

Now, with housing values softening across the country, investor appetite has slowed considerably and property prices in these mining towns are falling and investors are trying to flee these markets.

If you’ve been following my blogs you will know I suggest avoiding investing in mining towns and other areas that are driven by investor speculation.

I can see the short term appeal, but while they often exhibit great short term capital growth, these regions also tend to drop in value more dramatically when investor sentiment turns.

I’d rather invest in the big capital cities where owner occupiers drive the property markets creating more stability.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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