Economic tough times divide Sydney

By Michael Perry

SYDNEY (Reuters) - 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 percent, 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 percent 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 percent 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 percent 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.

REPOSSESSIONS, BANKRUPTCIES

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 percent.

Sydney house prices have fallen 2.1 percent in the quarter to June, the largest fall since 2004, and will experience an annual fall of 8.4 percent, says Australian Property Monitors

(APM).