A US defence think tank has warned that Australia only has six weeks to prevent a housing market collapse, due to the banks’ crackdown on foreign investor lending.
According to an article written by Washington-based International Strategic Studies Association (ISSA), local bank policy changes could mark a decline in foreign direct investment in the property sector.
“This will profoundly impact the Australian government’s ability to fund major programs in the defence and civil sectors,” it said.
“We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades,” ISSA president Gregory Copley told news.com.au.
“The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk… In doing so, they precipitate the market collapse but are less exposed to it,” Copley told news.com.au
However,
NAB chief economist
Alan Oster described ISSA’s prediction as “garbage”.
“What the banks were trying to do with the tightening of apartment lending, particularly to foreigners, was make sure that if people were having trouble offshore they didn’t end up in the Australian banking system,” Oster told news.com.au.
Louis Christoper, managing director of SQM Research, also rubbished the ISSA claims.
“We pretty much have had from the time the national market started to rally in late 2012, a pile of market bears declaring the imminent crash of the Australian housing market. They are, what I call, the boys who cried wolf,” Christopher said.
“I am convinced there is an industry of bear spruikers who earn a living preaching the end of the financial world, and for that matter, the demise of Australian housing,” he said.
While he refuted the ISSA’s claims, Christopher did nominate some potential risks for the Australian property and he said he had no problems with people voicing concerns about the health of the market if those concerns were based in fact.
“I have always said that I have no problem with those voicing the risks in the Australian housing market. There are indeed many risks, particularly those associated with the ever-rising level of household debt to GDP and what that would mean if our country just returned to ‘normal’ cash rate settings. That would indeed likely trigger a real rise in bad loans. These risks need to be pointed out to all participants.”
Christopher also said the oversupply of apartments in Brisbane and the collapse of the Perth rental market are other possible areas of concern.
