Property values skating on thin ice

Experts have warned that though Sydney's property market seems to be staging a remarkable recovery it could be a false down.

The recent boom in Sydney's inner west and the north and far west has been ignited by a dramatic cut in interest rates, a sharemarket dive, and the generous first-home buyers grants.

First Home Buyers driving the property market

The Daily Telegraph has reported that economists, estate agents, and property experts have suggested that the slashing of the grants from the end of September would reveal the true state of the property market.

The Federal Government's increased first home owners grant of $14,000 for an established home and $21,000 for a new property will be cut to $10,500 and $14,000 respectively from October 1. From January 1st both grants will revert to the original $7,000.

A Residex July 2009 snapshot of the city's home values have shown that the lower end - the domain of first-home buyers was driving the market with wealthier suburbs suffering declines of up to almost 10 per cent.

First home buyers desperately trying to buy a property before the grant cuts were pushing up prices across Sydney.

Properties are overpriced 5-10%

John Symond from Aussie Home loans was concerned at some of the prices first home buyers were paying for houses and felt that many of the properties were overpriced by five to ten per cent.

Mr. Symonds also felt that buyers were tripping over themselves to grab grants of $21,000 and were paying up to $50,000 too much and that they needed to be very careful. He further suggested that people needed to factor in an extra 2 or 3 per cent hike of interest rates for the next few years and if they could afford that, then it was the time to go out and buy property.

Real estate agents are nervously watching to see whether the current property boom will end once the grants run out.