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Keep calm, there is no property bubble, says franchise head

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Julia Corderoy | 04 Jun 2015, 08:00 AM Agree 0
The chief executive of a major broker franchise has refuted claims that there is a property bubble in Sydney and Melbourne
  • E3PI | 04 Jun 2015, 08:55 AM Agree 0
    Yay, I hope APRA reads this. Not to mention Sydney prices went nowhere for over 5 years and I didn't hear any complaints when the 2 speed mining economy was driving up Qld and WA prices.
  • Brado | 04 Jun 2015, 09:01 AM Agree 0
    Couldn't agree more!!!
  • Regional Broker | 04 Jun 2015, 10:44 AM Agree 0
    Agree except for one issue, if the Government starts to really enforce the regulations regarding Foreign Investment in the Resi Market and they commence charging the fees as proposed then it may see a small drop in demand from that sector. The head of treasury may know more than we do!!

    When you consider all the facts I cannot see anything but a possible flattening in demand but a bursting Bubble?? Peter Costello one of the best treasurers ever is well known for saying he never took much notice of the head of treasury!!
  • JC | 04 Jun 2015, 10:48 AM Agree 0
    Yes, lets all look at the current growth rates for the short term and completely ignore the longer term growth rates! What is the 10 year growth rate looking like, and how does that compare to historical information? The market is just catching up from the GFC. Now returning to normality, how is this different to what the share market did?
  • JB | 04 Jun 2015, 11:57 AM Agree 0
    Sydney values will not drop significantly - ever!
    Unless there is a huge increase in unemployment, mass business failure, banks going to the wall creating panic from sellers causing a surplus of housing stock. Unlikely in my opinion.
  • Confused | 04 Jun 2015, 01:01 PM Agree 0
    I think this is nothing more than a self interest piece from someone who is entrenched in the industry and has a vested interest to keep the status quo going.

    Mr Flavell is flat out wrong. To state that "However, according to the franchise chief, to state that a property bubble exists in Sydney and Melbourne means that you have to believe there will be a sudden and dramatic reduction in property prices over a very short period of time – that ‘the bubble’ will eventually burst" is too simplistic.

    This is simply not true. The bubble can correct slowly over time and will only inevitably burst if it is continually inflated. The mere fact that it hasn't burst does not mean it didn't exist. By mere definition Sydney is in the grips of a bubble.

    Now the causes of the bubble are, as Mr Flavell has pointed out, most definitely supply side constraints mixed with population growth and greater demands. I also agree that if this continues the likelihood of a severe correction is unlikely. The continuation of these conditions and probable continuation of asset price appreciation DOES NOT preclude the fact that by most definitions of what a bubble is we are experiencing one. A common thread in asset price bubble literature is the aggressive growth in prices away from the fundamentals that underpin that asset class. This is most certainly evident in parts of the Australian real estate market.

    Another common thread is as follows. Whilst there is considerable debate about definition of a bubble, whether they actually exist and the causes, one common element represented in the literature is the role access to credit plays in the formation, extent of bubbles and the period of recovery after correction if a correction occurs.

    The market is certainly illustrating the effects Mr Flavell is saying regarding supply and demand and this is evident in the asset price increases. But again, this does not rule out that a bubble can and most probably does exist in certain markets in Australia.
  • WD | 04 Jun 2015, 02:49 PM Agree 0
    I prefer to think of the past few years of the Sydney market as more of a correction rather than a bubble. When you think about what Sydney prices did around the times of the GFC and the ensuing years, the ten year average would be just about that, average. Normal expected capital growth.

    Yes there has been increased lending and the banks have only recently mostly all tightened their policies around investment lending which is another prudent measure to ensure the market doesn't overheat and become a problem.

    How about people consider the big picture not just a brief snapshot of a solid market.
  • BJ | 04 Jun 2015, 04:33 PM Agree 0
    Mr Flavell is indeed wrong, however more worrying is the fact that industry commentators “responded” with a lack of independence. Preach from a shallow grave.
    Speculation is a driving factor and indicates that prices are indeed pointing to a housing bubble or at least in the not to near distant future a correction will occur. Fundamentals cannot be ignored and arguments against, such as, supply, demand and population will camouflage the seriousness that an abrupt correction will have and in a broad flow across the economy.
    The finance sales industry would appear oblivious to garnering a deeper understanding of basic economic principles and the exuberance of investors experienced and the not so experienced to speculate, after all, it is your interest to sell more home loans, as you are not advisors and suffer no loss when the music stops and participants realising that but three chairs are available to the ten players. Musical chairs, Schadenfreude!
    If we were to be debating an out of control equities market “history repeats” and leverage into these markets, the finance sales industry would argue the dangers to ones desire to accumulate wealth. Oh, but I hear you say “greed is good” when it comes to property, it’s flattening, catching up post GFC. Seriously!
    Smart money is already on the exit and the exuberant speculator is increasing debt. Is the light on, anyone at home.
    Fingers crossed Mr Flavell, one of us will be right and when you have gold fever it remains an impossible task to cure.
  • Johnathan | 05 Jun 2015, 12:24 AM Agree 0
    And Mr Flavell's economic credentials are "what?" to be able to confidently make these remarks...
  • EB | 05 Jun 2015, 11:11 AM Agree 0
    The bubble is not a simple function of supply and demand for housing as expressed here, it's a function of increased pressures on the property market due to government subsidies offered to investors. These legislated subsidies for investors cause over-investment in property by making it a more attractive investment than it otherwise would be. That exaggerated property demand causes prices to rise. Any changes in the investment-encouraging legislation will burst that bubble... but the changes HAVE to happen because most residential property exists to shelter people, not to make investors wealthy. So, for social reasons, at some stage the government needs to choose between damaging the economy because they remove investor incentives, which will cause a potentially massive drop in property prices or otherwise have a major increase in homeless population due to people being unable to afford housing on either an ownership OR rental basis.

    It's like the idea that the baby bonus causes people to have more children - that's great if you have a diminishing population issue where jobs will be vacant and the elderly uncared for, but is a huge problem if you're over-populated, can't feed your people or cannot provide other necessary services. In this case, the government chose to stimulate investment when they needed it - but failed to remove the stimulus at the correct tipping point, but that stimulus NEEDS to be removed. When it is, expect a market correction.
  • Bill | 06 Jun 2015, 11:28 AM Agree 0
    Of course it's supply and demand (speculative). It always is supply and demand that raises prices, bubble or not. However, this price spike is largely driven by demand from speculators and foreign investors chasing capital gain. There are so many ridiculous articles on this subject by people with a vested interest.
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