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Australian Property: Doomsayer’s Obsession

Economist Steve Keen at the summit of Mount Kosciuszko after losing a bet house prices would plummet 40 per cent. Photo: Andrew Meares. Credit: Domain website http://bit.ly/1T7b9MT

“…we can live without gold, we can even now live without oil, we can live without stocks and shares, we can live without just about everything now, but we can’t live without somewhere to live. There is this whole crowd of people who love to give the property market a hard time as if it is a bad boy for making people money.”

IN 2010, Steve Keen undertook a 224-kilometre walk from Canberra’s Parliament House to the Snowy Mountains’ Mount Kosciuszko wearing a T-shirt with the words, “I was hopelessly wrong on house prices. Ask me how.” The walk was the result of a lost wager – the economist had made a bet with Macquarie Bank analyst Rory Robertson that home prices would fall 40% from peak to trough in a year.

Contrary to Keen’s prediction, capital city house prices in Australia rose by 12.1%, hitting a new high, as demand from first-home buyers sparked a revival at the lower end of the market.

In 2014, American economist Henry Dent forecast a fall in house prices of at least 27% in Sydney and Melbourne over the next several years. Macroeconomic researcher Lindsay David followed suit with his prediction of a housing bloodbath in the same year.

UK-based economist Jonathan Tepper is the latest in a line of doomsayers touting the proverbial Australian housing bubble and the property market crash of between 30% and 50% in values.

“Australia now has the highest level of household debt to GDP in the entire world,” says Tepper, following his well-publicised research ‘expedition’ in Sydney’s Western suburbs.

It’s fascinating how his predictions are based on a rather unrepresentative sample of the entire Australia. Equally fascinating is the forbearance of Australian industry experts and how they have patiently swatted away predictions by doomsayers time and again.

AMP Capital chief economist Shane Oliver said: “In a way I think it is a bit of a joke, this sort of story has been wheeled out almost continuously now since 2002, 2003. We had a big run up in property prices then and it did become a bit bubbly around that time and of course various people were inclined to think that property could crash. Then as the years rolled on I began to realise and I think most people in Australia realised, that the Australian property market is a lot more complex and a lot more stable than people give it credit for and the reason prices don’t crash is because we don’t have an oversupply like America did at the time of the GFC.’’

Real estate expert Andrew Winter said commentators who expressed this kind of “drama” about the market were forgetting what the commodity was.

“This commodity is property, residential property, and that is where all the calculations fail. For the simple reason is we can live without gold, we can even now live without oil, we can live without stocks and shares, we can live without just about everything now, but we can’t live without somewhere to live. There is this whole crowd of people who love to give the property market a hard time as it if it is a bad boy for making people money.”

Truthfully, there is much to be considered in the life and times of the Australian property market – not just prices in Sydney and one or two suburbs in Melbourne.

Things are going well Down Under, overall: the RBA has highlighted lower unemployment, above-average business conditions and stronger business lending, noting expansion in the non-mining parts of the economy had strengthened during 2015. The facts speak for themselves; research has shown that the Australian population is slated to increase over the years with Melbourne leading the way.

CSI Properties (Cornerstone International) spokesperson Virata Thaivasigamony chuckled at the recent prediction made by Tepper, joking that doomsaying helps make headlines and drive newspaper sales.

“Australia has one of the highest population growth trends, superseding a good number of developed countries in child birth rates. Its capital appreciation rates are unlike Singapore, Hong Kong and Malaysia – there are no steep fluctuations. The last 50 years have seen Australia’s appreciation rates on average rise at a steady 7% thereabouts, which I would attribute to population growth. And with population growth comes increase in demand for housing,” he said.

But as they say, there are two sides to a story, just like there is always more than one story. Ultimately, the decision lies in the hands of the buyer/investor. As always, we strongly advise investors to research the market: do some reading and/or call us for obligation-free consultation and advice so that you can make informed decisions. At Cornerstone International, we place great value on research and strive to offer viable investment projects backed by research.

For now, let us leave you with a darkly humorous parting shot: predicting when the property bubble will pop is bad for your mental health, according to the Sydney Morning Herald J

CSI Properties (Cornerstone International) proudly markets international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence. 

Disclaimer: Cornerstone International does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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