During the past 12 months, Australian interest rates have gone up, the Aussie dollar has remained steady against the US dollar, occupancy rates for rental properties have started rising, and prices have stabilized in several cities. Australia’s unemployment rate is at a historical low. Migration is at an all time high. The Australian economy is healthy. Aussie taxes have been lowered.

These facts must have an effect on the Australian Real Estate market in 2007. The question is what?

The interest rates in Australia have moved up slightly to around 7%, still relatively low historically, and the rental yields (around 4-5%) have just started to go up.

Although, as any specialist knows, it is foolhardy talk about Australia's’s property market as if it is one homogeneous whole. Each city, and even sectors within each city, move on different cycles.

For example, the Sydney and Melbourne real estate market peaked in 2003 to 2004, Brisbane properties grew until late 2004, and Perth is currently ’s strongest real estate market, booming right through 2005 to 2006.

Astute investors who sold their house in Sydney in 2003 and moved into Perth houses have since doubled their money.

So, where to from here?

Evidence is that the rate of growth has started to slow now in Perth, and real estate prices may be overheating. Perth is now ranked as the most expensive city in Australia for it’s real estate (based on comparison with median incomes).

There are strong indications that parts of the Sydney property market have already started to recover. Sydney has always been the most expensive city in in terms of absolute real estate prices, but interestingly, current affordability levels in this city are at their best level since the early 1990’s.

There is very strong pent up demand, and the Sydney property market may well start to fire again in 2007. Rentals are expected to start to rise in 2007 too. However, certain areas in Sydney will outperform others.

The traditionally safe areas around Sydney harbour are predicted to greatly outperform the outer area – although in saying that one should remember the Sydney property market as a whole has always proven to be one of steady growth, over the long term.

The stand out performer for the next 6 months though appears to be houses in Melbourne.

A study of house prices in Australia over the past 10 years shows that Sydney increased by 161% and Melbourne 148%.

However, over the past 5 years, Sydney property has gone up by 63%, pretty much as expected. But Melbourne real estate seems to have underperformed at 43%. This is around 15% to 20% less than what we’d expect at this stage of the cycle. The past 20 years for Melbourne houses has shown growth of 357%, so all evidence seems to show that the past 5 years there has definitely been underperformance. Especially when we consider that during the same 5 years, Brisbane homes have risen by 109%, Perth houses by 95%, and even Adelaide has seen growyh of 108%.

Yet the fundamentals in Melbourne are strong. The population is growing. The economy is sound, migration is increasing. The rental occupancy rates for houses are running at over 98%, and reports from Melbourne show many tenants are having to enter a bidding war to secure a home. Rents have risen 5% in the past few months.

We expect a catch-up in Melbourne house prices that may surprise many. It is the best time for some 6 years to enter this market for houses, although apartments in Melbourne may not recover until later.

Rents around have generally not increased significantly since 2001, although rental increases have now started, especially in Melbourne. We expect them to gain momentum through 2007 in the other Australian cities.

Most analysts are advising their clients to immediately buy Melbourne houses while bargains can still be found, and to look for “off-plan” Sydney apartments in early 2007, especially in prime areas around Sydney harbour. Off-plan apartments with a 2 year completion, will be very well positioned to enjoy the next Sydney upturn.

Today, the key to success in the Australian property market can best be defined by sustaining your ownership. The key is to buy a trouble-free property that has good rental and growth prospects over a long period of time.

By taking the long-term position, it can mean almost guaranteed wealth……security goes hand in hard with the patient and long-sighted pursuit of accumulating wealth. It is an endeavor that can not be hurried without risk.

(More information on www.AustralianPropertyinvestor.com)

These facts must have an effect on the Australian Real Esatate market in 2007. The question is what?