The buy buy-to-let market in Australia has dipped by up to 15 percent because of a huge over-supply of rental property in some areas such as Sydney and Melbourne.

At the market peak some 40 percent of mortgage lending was to private landlords.

Now rental returns have fallen to as little as one percent, investors have begun to offload properties for whatever price they can make and as a result, house prices have begun to plummet.

Meanwhile, Datamonitor reports that other market factors are coming into play across the country. Figures from the Australian Bureau of Statistics covering the latter part of 2003 suggest that Australia's housing market is cooling significantly.

Australia has certainly enjoyed a property price boom in recent years. Prices across the country have shot upwards fuelled by low interest rates and a strong demand for property among residential buyers and investors.

Now, says Datamonitor, there is evidence that the property market is slowing. Figures from the Australian Bureau of Statistics show that home building approvals fell by 6.7% during the month of November. Approvals for townhouses and apartments fell by as much as 17%. These falls were recorded before the recent interest rate rises, underlining consumers' concern about the overall Australian economy.

Further evidence of a weakening Australian property market is provided by auction clearance rates. Data from Australian Property Monitors shows that in December clearance rates in most cities fell below 50%. In Sydney, clearance rates fell as low as 44%. This is the lowest recorded level since December 1992.

There is a strong likelihood that the Reserve Bank will increase interest rates still further early in 2004. There are already signs that lenders are becoming more cautious and thus less willing to lend at high loan-to-value ratios. In the months ahead consumers will therefore find it harder to purchase property with a small deposit than they did in 2003.

Could it happen in the UK?

As yet, the depth of buy-to-let mortgage exposure in the UK is no-where like the Australian situation. Recent figures from the Council of Mortgage Lenders indicate that buy-to-let mortgage lending although still soaring, is still only at 6% of all housing transactions.

Those that have remortgaged to buy further properties are not included in the above figures, but these will tend to be people less likely to sell at the first hint of a market turndown. The UK buy-to-let market is in part supported by people saving to buy homes and so there is a reservoir of people ready to buy.

Interest rates have been climbing in Australia. The Reserve Bank hiked rates in November and December and has since indicated that at 5.25 percent, its official rate is still conducive to solid economic expansion, leading most economists to expect the bank will raise rates possibly one more time early in 2004. Here in the UK analysts think rates are unlikely to go above 5 percent this year.

Another factor is market confidence. According to a report in Negotiator, the estate agents’ magazine, a but-to-let expert is being blamed for the market collapse in Australia.

Apparently the ‘expert’ one Henry Kaye, lured some 100,000 people to expensive seminars where people paid up to £21,000 each to hear how to buy property at below market prices.

The hapless investors eventually found that far from buying new homes at a discount they had bought at inflated priced in a scam involving property developers.

Although the UK has seen its share of property investment seminars none has hit the market confidence as the Kaye affair in Australia. This cause of property market collapse does not seem to be about to hit the UK at the moment.