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House prices in Australia have soared over the past decade: they are now two-and-a-half times what they were in 2000.

While prices dipped a little at the height of the global financial crisis, they have since resumed their onward rise.

In fact, they rose a whopping 20% in the 12 months to the end of the first quarter.

And according to The Economist, “Australian property is the most overvalued” of any of the 20 countries they track, because the ratio of house prices to rents is well above its long-term average.

With the Reserve Bank of Australia raising interest rates to cool the market, might the bubble burst?

If so, the Lucky Country, which has so far sailed through the crisis virtually unscathed, may be in for tougher times ahead.

Fortunately, it exports a lot to China’s booming economy – and it may need to rely even more on that in future if domestic demand takes a knock.

As I explain in my new book, Aftershock: Reshaping the World Economy After the Crisis, which has just been published in Australia, perhaps Australians should be less hostile to Chinese investment in the country.

They may soon really need it.

Posted 13 Jul 2010 in Blog

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