SYDNEY: Australian house prices in major cities should hold firm, despite the prospect of more rate hikes this year, as people are attracted to cities for more jobs and a better commute, Australian property group Ray White said.

Gone are the days when people escaped from cities to new regional areas and lived by the beach, and in the last couple of years big cities like Sydney and Melbourne have reasserted themselves to draw more people in, while regional areas lost pace, said Brian White, joint chairman of Ray White.

"Increasing transport complexities, increasing travel time, disappointment with the depth of infrastructure in newer areas are all contributing to this reversal," White told Reuters.

"In Sydney, the closer to the hub of the CBD (central business district) has also done better than the extremity of Sydney," White added.

Housing prices in Australia fell sharply last quarter as higher mortgage rates cooled the market.

Detached houses in the major cities fell 1.7% in the first quarter, the largest drop since the third quarter of 2008. The Reserve Bank of Australia has raised rates seven times between October 2009 and November 2010.

Another supportive factor for the housing market was government spending, with more than a third allocated to staffing, White said. The housing market in Canberra, the capital of Australia, had fared well, he noted.

"Canberra is probably the strongest market in Australia," he said. "Huge drivers of economic activity come from governments and governments are located in the cities. Strong jobs, secure jobs" are there, added White.

Regional markets, on the other hand, will remain under pressure, he said.

A high Australia dollar has dampened tourism industries which are generally regional based, White noted.

Owning second homes had also become less fashionable, hurting some regional markets where many holiday houses are located.

"Second homes are generally in a non-city area, that's the first thing to be sold," White said.

Ray White is a non-listed family-owned business and has more than 1,000 offices in Australia, New Zealand, Indonesia, China, India and the United Arab Emirates. — Reuters

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