“Big shakeouts” expected for Australian property

by Miklos Bolza12 Dec 2016
One of Australia’s leading economists has warned of “big shakeouts” in the national financial markets, including property.
 
“I can’t tell you if it’ll happen this year, next year or the year after, but common sense says that things are very highly priced,” said Australia chief economist Stephen Anthony in an interview with The New Daily.
 
Throughout the developed world, low rates have seen investors pour money into property, stocks and bonds – a trend which drives up market prices but has little effect on economic growth, Anthony said.
 
“The RBA should just leave things where they are and sit back and use APRA and any other regulatory mechanism it can to slow price growth in Sydney and Melbourne.”
 
Anthony seems to be going against certain trends, though, with 57% of experts surveyed by finder.com.au saying the RBA will drop rates below 1.5% in 2017.
 
While arguments such as poor GDP growth and political uncertainty from wildcards such as Donald Trump may be used to support a cut, dropping rates could further worsen economic distortion, Mark Crosby, macroeconomist at Monash University, told The New Daily.
 
“It’s always hard to call the top, but it’s definitely the case that there are risks being caused by these very low rates, especially in the Australian housing markets,” he said.
 
“The point of low rates is to stimulate demand, but when that hasn’t happened and that liquidity goes elsewhere, that creates other problems, so yes there are definitely risks being built up, and that’s a worry for the Reserve Bank and other central banks, for sure.”
 
Ashton De Silva, a housing market expert, said that the expected shakeout had already begun with prices in parts of the market, such as off-the-plan apartments in Sydney and Melbourne, already being hit.
 
“There are stories emerging where people are purchasing stuff off-the-plan, but then finding out when they actually take possession a couple of months or years later, the contract price is actually higher than the retail price,” he said.
 
“My view is that there’s a very, very good chance that we’re going to see a significant correction in some dwelling types in some areas.”
 
Last month, Greville Pabst, executive chairman of WBP Property Group, told Nine News that half of all inner city apartments in Melbourne will drop in value by up to 15% before settlement.
 
“It’s not like the values are falling. Simply, they’re over-priced from the very start,” he said.
 
“It’s a bit like a new car. When you drive it off the lot, straight away it depreciates. It’s the same when you buy new property.”
 
Related stories:
 
Property group warns of buying off the plan
 
APRA concerned about “frogs in pots”: Mortgage Choice
 
Low interest rates, not negative gearing to blame for unaffordability?

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