Rich OZ suburbs could be hit by defaults at property owners over stretch themselves

Property owners in some of the top suburbs in Australia are in danger of suffering financial distress as interest rates are expected to rise and the government’s first home owner’s grants comes to an end.

A staggering a third of the country has entered the danger zone for financial distress, despite signs that economic conditions are improving, according to research from Dunn & Bradstreet.

It found that that 33% cent of postcodes had fallen into the high-risk category of financial distress, with Victorian suburbs facing the highest risk of defaulting on debts. This is up 30% on the same time last year.

The research, revealed in The Australian newspaper, lists the Melbourne outer suburb of Frankston North as the postcode with the highest risk of default, followed by two of Sydney’s most exclusive eastern suburbs, Bellevue Hill and Woollahra.

Of the 50 most financially stressed suburbs, 29 are in the first-home owners belt, which includes the outer Melbourne suburbs of Chirnside Park, Cranbourne and Carrum Downs and Sydney’s western suburbs Mount Druitt and Auburn. These areas have seen a sharp rise in credit obligations since the increase in the first-home owners grant thereby increase the risk of defaults.

Last week’s GDP figures showed the economy had gained pace, driven by increased spending on equipment and by households, which helped to make up for falls in private investment.

Dunn & Bradstreet chief executive Christine Christian said the rising risk of loan defaults underlined the potential for the global financial crisis to become a personal credit crisis in many Australian homes.

Aussie Home Loans chairman John Symond was not surprised some of the nation’s top suburbs ranked as the highest risk. ‘People overstretch themselves in these suburbs. The wannabes pay the double rent and pay much higher prices going shopping at Woolworths in Double Bay than Blacktown. Many are living on credit,’ he said. We will keep a close eye on default rates as this can be an indicator of troubled times ahead.

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