Economic tough times divide Sydney

August 21, 2008
Economic tough times divide Sydney

(SYDNEY) This is a tale of two cities.

There's the beachside Sydney, washed by white foamy waves, dotted by
cafes and high class restaurants and multi-million dollar houses and
apartments - it's boomtown Sydney.

Then there's the other Sydney. The one not in the tourist brochures,
that stretches west and is home to the bulk of the city's six million
residents, many struggling to survive the global credit squeeze, a 12-
year high interest rate of 7.25 per cent, rising food and fuel costs
and falling house prices.

Sydney, like the rest of Australia which has enjoyed 17 straight
years of economic growth and a housing boom in recent years, now has
a two-speed economy and the divide between winners and losers seems
to be widening.

By the end of 2008, an estimated one million Australian households
will be suffering mortgage stress, which means they pay 30 per cent
or more of their household income on mortgage repayments, says a
recent Fujitsu Consulting/ Wizard Home Loans survey. Hundreds of
thousands of homeowners are in severe mortgage stress and are unable
to make repayments on time.

'The sad fact is that come Christmas time, we estimate that one
million Australians will suffer mortgage stress. That's a huge number
of people that are potentially going to face losing their property
unless drastic action is taken,' said Mark Bouris, chairman of Wizard
Home Loans.

And the country's biggest city Sydney has some of the biggest
mortgages. The average monthly mortgage repayment in the city has
risen more than 40 per cent in the past five years, says a study of
the city by the University of New South Wales (NSW).

The study said homeowners in western suburbs such as Canterbury,
Bankstown and Auburn, were paying over 40 per cent of their income on
mortgage repayments. Meanwhile, wealthier eastern and northern
suburbs have seen incomes rise to accommodate higher mortgages.

'Sydney got richer in the first five years of the new century, but
that new wealth was very unevenly spread about,' said the report
titled 'Our Changing City' by The City Futures Research Centre at the
University of NSW.

Home repossessions and personal bankruptcies in Sydney's west are
rising and while some homeowners are selling up, sliding house prices
are leaving them with large debts to banks.

There were 1,077 court-ordered home repossessions in NSW in the first
quarter of 2008, compared with 921 in the same period in 2007. Of the
top 10 worst areas for delinquency, late mortgage payments, six were
in Sydney. And its Sydney's western suburbs where most homes were
lost.

While residents in the city's affluent east, north and inner west may
have large, often multi-million dollar mortgages, their properties
are holding their value. In contrast, housing prices in some western
suburbs have fallen 20 to 50 per cent.

Sydney house prices have fallen 2.1 per cent in the quarter to June,
the largest fall since 2004, and will experience an annual fall of
8.4 per cent, says Australian Property Monitors (APM).

The median price for a Sydney house in June was officially A$542,000
(S$667,000), but that will not buy you a house anywhere near Bondi in
the east, where the starting price for a house is well above A$1
million, nor anywhere north of Sydney Harbour.

Housing affordability is declining in Sydney, especially in outer
suburbs, said The City Futures Research Centre report.

'This is consistent with an analysis of the changing income growth
across the city, with stagnant household incomes in many middle and
outer west suburbs contrasting to strong income growth in the inner,
eastern and northern suburbs,' said the report.

Not only has 12 interest rate rises since 2002 divided Sydney, but so
has the rising cost of living, with inflation forecast by the central
bank to reach 5 per cent by year end.

Australia's economic boom has seen credit card debt soar to around
A$44 billion, with the average card carrying a 19.5 per cent interest
charge on a monthly balance of A$3,100.

'Household indebtedness is around historical highs,' says the Reserve
Bank of Australia (RBA). Welfare groups say financial crisis services
are swamped by people, many from western Sydney, struggling with
mortgages and sometimes up to 12 credit cards.

'It's not unusual to see a person come with a large mortgage debt but
also a string of credit cards as well, which they have often maxed
out to maintain the mortgage for as long as they can. They use credit
cards to buy food, pay utilities,' said The Salvation Army's Tony
Devlin.

'There's definitely an economic divide (in Sydney). There's two
economies operating, the one our clients operate in and the other
that you see on the front page of the Australian Financial
Review,'said Devlin.