Investors and upgraders to raise house prices by 23 percent

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By Emma Thelwell, ninemsn Money

Investors and upgraders are expected to push Australian property prices up by as much as 23 percent over the next three years, according to experts.

Low interest rates and a shortage of affordable housing, coupled with growth in rental rates, will continue to drive up house prices - despite the threat of higher borrowing costs, according to the QBE Lenders' Mortgage Insurance (QBE LMI) Housing Outlook 2010-2012.

Adelaide, where property is the most affordable, is expected to see the strongest price gains, clocking a 23 percent rise over the next three years.

Meanwhile, housing shortages in Sydney and Melbourne should drive growth of 21 percent and 19 percent respectively, LMI predicts.

Recent strong growth in Darwin will be tempered by the weakness in the resources sector, although homes should still enjoy price surges of up to 17 percent.

Price growth in Brisbane and Hobart is expected to be dampened by risks to the local economy, with property in both cities seen rising in value by 15 percent.

Perth is expected to continue to suffer as the mining sector slows, and the stalling job market could hit Canberra, leading to more modest property price rises of just 12 percent over the next three years in both cities.

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Ian Graham, chief executive of QBE LMI said the outlook was particularly good for first home buyers who have recently joined the housing ladder, and should also lure more investors back to the market.

"The surge in first home buyer demand is now slowly permeating through to greater demand from upgraders who are trading over to their next dwelling after selling to the buoyant first home buyer market," he said.

"The strong rental environment and stabilisation of prices is also beginning to attract investors back into the market."

Activity from both groups should pick up over the remaining months of 2009, said Mr Graham, propelling demand next year and picking up the slack in first time buyer demand after the First Home Owner Grant ends in December.

While low interest rates have helped the property market back to its feet after heavy losses last year, Mr Graham warned that a fragile economy and the continued high cost of borrowing will limit short term price gains.

Prices are not expected to pick up speed until the latter half of 2010, looking ahead to 2011 and 2012.

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