Australian property is more than 25 per cent overvalued: The Economist

Location, location, location.

Australian property is among the most expensive in the world, more so than the United States and Britain.

According to The Economist, "property is more than 25 per cent overvalued in seven of the markets we track, notably in Australia, Britain and Canada".

The Economist house-price index tracks the health of housing in 26 markets around the world, encompassing a population of over 3 billion.

Belgium tops the list as the most expensive to buy in, with Australia coming in second.

However, the simple equation of comparing property prices in Australia to those overseas has been critisised as being ineffective.

Different tax regimes, housing standards, rates of wealth accumulation and overarching attitudes to property are all reasons why people may be spending more on housing in Australia than, for example, the United States.

The affordability questions you need to consider

Inflated house prices may be good news for investors and those looking to sell, but is another blow for those looking to buy a home.

In Australia, it is becoming increasingly expensive to buy a property compared to renting, and many first-home buyers feel they are being ‘squeezed out’ of the market.

Buying a home in the current market is a fine balance between wanting to get a slice of skin in the expensive, and taking advantage of record low interest rates.

If you are looking to buy, consider:

• Not all loans are considered equal

Buying a house means not only making a property purchase, but also taking out a home loan – possibly the single biggest financial commitment you will make in your lifetime.

Lower rates means lower mortgage repayments, so ‘affording’ the repayments should be easier. But as we can see in the current market, lower interest rates often put property prices higher.

Find the lowest rate home loan, and ensure you compare home loan rates to get the best loan to suit your needs.

• Do your research

When investing in real estate, make sure it will generate returns in the long term.

The key here is to buy into a market that you understand, preferably somewhere within your region so you are aware of environmental factors like future development plans or a sudden increase in popularity that could play a big factor in your returns.

Always keep in mind that the real estate market has no guarantees. Find out if you are eligible for any government grants, like the generous First Home Owner’s Grant.

Related: Comparing and applying for a property investment loan

The closer you get to the inner city areas of the capital cities, the more expensive the cost of housing. Many potential buyers then decide to look further afield when purchasing a home.

Data from research firm CoreLogic shows the top 5 most affordable middle-ring suburbs in capital cities around Australia within 10-20 km of the CBD.

The cost of housing close to the centre in capital cities is continuing the climb. The abundance of social and retail amenities make living close to the CBD attractive for buyers, many of which are happy to pay a premium to secure a home.

Top 5 most affordable suburbs within 10km of CBD:

Source: CoreLogic RP Data.

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