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Australia in property bubble: 1 in 3 investors

By Vivienne Kelly
Property bubble
18

More than 30 per cent of investors believe the country is in the midst of a property bubble, despite a clear majority saying now is still a good time to buy, according to new research.

The latest Smart Property Investment Investor Insight Survey reveals 32.3 per cent of investors think Australia is currently experiencing a property bubble. Just over 54 per cent said there was no property bubble and a further 13.5 per cent were unsure.

Last month, ASIC chairman Greg Medcraft expressed concerns about the “historic highs” of the Sydney and Melbourne property markets and cautioned that the two cities have the characteristics of a bubble.

Mr Medcraft said the low interest rate environment was fuelling investors’ appetites and warned that “history shows people don’t know when they are in a bubble until it’s over”.

“There is always danger when rates get so low,” he said. “That's when people start borrowing when they can't afford it.

“What generally happens is rates start to rise, which affects your ability to pay, and rate rises can actually bust a bubble so you end up with a double whammy.”

One investor who firmly disagrees with the bubble idea, however, is Julian Lancey, who said while there’s no denying Sydney prices are growing at a rapid rate, there was no danger of Australia experiencing a US-style GFC house price collapse.

“You have to compare apples with apples,” Mr Lancey said. “What is different between Australia today and the US then? Well, just about everything – the country itself, interest rates, economy, time, bank rules, strength of the banks, inflation, employment, share market strength.

“Current Sydney prices are expensive – nobody can argue with that – but it comes down to more than just one reason. It comes down to lack of stock, low interest rates, tax breaks, increasing population, international buyers, [the lack of returns on] other investment options, infrastructure, auction clearances rates, the fact that western Sydney is now cool, and heaps more.”

He said investors who believed Australia was in a property bubble weren’t looking at the bigger picture and were simply distracted by rising prices.

Mr Lancey’s sentiments were echoed by Mortgage Choice CEO John Flavell, who said prices in Australia’s two largest capital cities are not about to fall and “perceptions of a property bubble” are based on a fundamental misunderstanding of supply and demand.

Mr Flavell said the “key characteristic of a bubble is that it bursts”, and this simply isn’t on the horizon for Sydney and Melbourne.

“If you are prepared to believe basic rules of supply and demand do not apply to the Sydney and Melbourne property markets; if you believe the population is about to go backwards overnight; if you believe we will be able to manufacture new land close to the heart of our busiest urban centres; if you believe we are all about to flee the country and there is a fleet of trains that could take us there; and if you believe we all want to move our families into studio apartments and forgo our houses; then you might just believe a property bubble exists in Sydney and Melbourne.”

Mr Flavell conceded property in the two cities is expensive, but said “it is not about to get any cheaper”.

The findings of Smart Property Investment’s Investor Insight survey come despite a clear majority also indicating they think now is still a good time to purchase property. Asked ‘Is now a good time to invest?’, 70.5 per cent of respondents said ‘yes’. Just over 20 per cent said now was not a good time to buy and 9.4 per cent said they didn’t know.

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