It sure went belly-up in early 2004 but look what’s happened since then...
Australia can't afford to burst housing bubble as wave of Chinese money looms
2 October 2015
Rose Powell
Property rises might be taking a breather after a year of superheated growth, but one investment banker has bad news for most aspiring home owners: Australian house prices will keep getting higher and the government will do nothing to prick the bubble because the country simply can't afford it. And any hint of instability in China could send a wave of new money into the Australian market, says Saxo Capital Asia macro strategist Kay Van-Petersen.
Houses and apartments in Australia, particularly Sydney and Melbourne, have never been more expensive. The median house price in Sydney hit $1 million in July, said the Domain House Price Report, and investment bank Goldman Sachs estimates the markets in Sydney and Melbourne are almost 20 per cent overvalued.
House prices are on track to rise by a whopping 9.8 per cent this year, say numbers released this week by the Australian Bureau of Statistics, which showed national price growth was 4.7 per cent between the March and June quarters.
Morgan Stanley has said the prices have peaked, but Mr Van-Petersen says they will continue to grind upwards and the government is unlikely to do anything about it.
"The government has to try and talk it down and say it's inflated, but at the same time all they can try and do is control the ongoing growth as best they can," Mr Van-Petersen said. "If they wanted to prick it, they could, but Australia simply cannot afford to."
New Zealand and Singapore have enacted strong policies to force adjustments in housing markets and Mr Van-Petersen said Australia could easily deflate the bubble by pulling the stamp duty tax charged to foreign buyers from properties of more than $15 million to, say, $1.5 million.
But the property market is one of the few areas of the economy that is growing adequately as terms of trade plummet and mining companies shed value because commodity prices are falling in light of a slowing China.
"Australia can't afford for property to have a hard landing. If housing prices bust, the banks will get hit hard. And then what is there? It's in everyone's interests right now."
IMF weighs in
Even the International Monetary Fund is talking about Australia's favourite conversation topic: property prices and whether the country is in a bubble.
In the IMF's latest report on the Australian economy, it raised the increasingly likely potential of a housing price correction, and called for greater investment in infrastructure to "relieve bottle necks and housing supply constraints".
"Buoyant housing investor lending has recently prompted regulatory action to reinforce sound residential mortgage lending practices," its report said.
In a similar finding to that of the Australian Prudential Regulation Authority, the report said the big banks' strength and profitability would need more support if a severe adverse scenario occurred, such as a housing bubble collapse.
"To address risks in the housing market, directors supported targeted action by the regulator. They cautioned that if investor lending and house price inflation do not slow appreciably, these policies may need to be intensified."
Even if more houses and apartments are made available for purchase, Mr Van-Petersen warned any political or financial issues in China could trigger a huge wave of foreign buyers into the property market.
He said: "There is a lot of talk about Chinese money, but you guys haven't seen anything yet. Any wobble in China, whether it's political or a financial markets issue, will see serious money flooding out here and, so far, Australia's got no idea of what that looks like."
Downturn hits property market
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April 13, 2004 - 11:59AM |
A fifth consecutive monthly decline in Australian housing finance figures is further proof of a downturn in the nation's housing sector, economists said today. The number of loans to owner-occupiers for housing fell by 4.3 per cent, in seasonally adjusted terms, to 50,692 units in February, the Australian Bureau of Statistics said today.
UBS chief economist Scott Haslem said this was the fifth monthly decline in a row for housing finance, adding that over the past five months lending had fallen 17.4 per cent and by a greater 18.4 per cent excluding refinancing. He said the decline was concentrated in lending for construction of new dwellings and for established dwellings, while lending for newly-erected dwellings had rebounded after last month's slide. "Today's housing lending data provide further evidence of a slowing in housing activity, both in lending for established housing and new construction," Mr Haslem said. "This is also being reflected in weaker business conditions in the NAB survey for the construction sector."
Overall, however, the NAB business survey also released today suggested business conditions remain firm, albeit less vigorous than at the end of 2003, he said. "We continue to look for the RBA (Reserve Bank of Australia) to be on hold for now," he said. The NAB survey found Australian business conditions were unchanged in March, at 13 index points, while confidence rose 4.7 points to 12.9 points. However the survey also showed the trend to slower growth in 2004, following the very rapid expansion in late 2003, now appeared well established in the softening trend in business conditions. HSBC senior economist Anthony Thompson said that while the February housing finance number was weaker than the market consensus of a 2.3 per cent decline, the construction finance downtrend remained relatively mild.
He said the downtrend remained in line with private building approvals in suggesting a gradual fall in dwelling investment in the second half of 2004. "Whilst the headline result for total finance was below consensus, the key as far as the outlook for the construction sector's influence on GDP growth, employment, and wage and materials price pressures is finance for the construction of new dwellings," Mr Thompson said. Construction finance fell 3.6 per cent in February, adjusted, after a rise of 1.4 per cent the previous month. "This left the construction finance trend negative for the sixth consecutive month, implying dwelling investment detractions from GDP growth in the second half of once work in the pipeline is complete, but the pace of downtrend remained relatively mild and orderly, consistent with a gradual fall rather than collapse," he said.
Westpac senior economist Andrew Hanlan said the detail of today's numbers was not as weak as the headline figure suggested. "New lending for owner-occupiers broadly stabilised in February and the decline since September is not quite as sharp as previously believed," he said. He said that in value terms new lending had increased 1.2 per cent last month, to be 18 per cent lower over the five months. "Finance weakness in February was concentrated in the refinancing sector, which strengthened between June and September last year in the run-up to the rate rises," he said. "A more complete picture of housing finance in February will be possible with the release of investor data on Thursday," he said. "It wouldn't surprise to see a small bounce in investor finance following the 14 per cent drop in January."
RBC Capital Markets senior currency strategist Greg Gibbs said the 4.3 per cent dip in February housing finance was the lowest since November 2002. He said the decline was broad-based across the country, with only the Northern Territory recording a rise, and that the biggest drops in percentage terms were in the ACT, Victoria and NSW. "The fall was driven largely by a decline in refinancing, which says less about housing and more about a possible decline in credit for other consumption," he said. He said the 1.1 per cent drop in the value of commitments was less than the number, indicative of a higher average loan size.
IMF predicts Aust housing bust
Updated
http://www.abc.net.au/news/2003-04-13/imf-predicts-aust-housing-bust/1835644
The International Monetary Fund has predicted Australia's housing boom is likely to bust. In its six monthly World Economic Outlook, the IMF predicts the housing bubbles in Australia, England, Ireland and the United States will burst. IMF research director, Kenneth Rogoff, has told ABC TV's Inside Business, Australian home prices have risen by 50 per cent since the last peak, and the boom cannot be sustained. "We did a study, I won't want to overstate the results but we find that in countries which have booms, and all of the ones I listed have had our statistical definitions of booms, there is probably of a bust, it is not 50-50 but it is about 40 per cent."