One investment firm's forecast of a 7.5 per cent decline in property prices has stirred strong reactions from the real estate industry, with predictions that the upswing still has plenty left to run and warnings that the Australian market should not be judged as one entity.
The forecast by Macquarie Group that Australian property prices will drop by 7.5 per cent from March 2016 has been met with opinion ranging from fierce criticism to muted agreement from industry players.
The prediction, released as part of a research note on Monday, is largely in tune with that expressed by other firms during the week, including AMP Capital’s chief economist Shane Oliver’s warning that prices are due for a five to 10 per cent decline around 2017.
Raine & Horne executive chairman Angus Raine believes that the firm's prediction is difficult to substantiate given the current performance of major property markets.
“Current demand for property, auction clearance rates and market depth do not indicate a major market correction is on the horizon,” Mr Raine said.
Mr Raine cited the mining and manufacturing downturn as reasons for another RBA rate cut, which he believes will further sustain the current real estate cycle.
“With these economic issues in mind, another interest rate cut by the RBA in the first quarter of 2016 is a possibility, and would give the real estate cycles around the country longer tails that will extend well into next year,” he added.
Mr Raine’s claims were backed up by Hugh Macfarlan, principal of Raine & Horne Chatswood/Willoughby.
“All the factors that have underpinned the current property cycle are still in place. We have historically low interest rates with the prospect of more to come, a highly volatile share market, along with strong demand for real estate from local and overseas buyers, investors and self-managed superfunds,” Mr Macfarlan said.
Veronica Morgan, the principal of Good Deeds Property Buyers, who is based in Sydney’s inner west, blasted the bank for broadcasting the prediction without considering the Australian market on a micro scale.
“It really annoys me when bank PR people get hold of some economic data, and suddenly an impending drop in the Australian property market is front-page news,” she said.
“Why can I say that this latest prediction will not come true? Because there is really no such thing as an Australian property market. Look at any national property data, for instance CoreLogic, and you will see that no two capital cities perform in the same way,” she added.
“And then there are regional markets that all have their own cycles to consider. So how can anybody make a claim that the entire country is over-priced or ready for a fall? Even within Sydney there are dozens, probably hundreds, of micro markets."
Director of wHeregroup Todd Hunter is sceptical of Macquarie’s ability to put a precise figure on the market’s rate of decline, but supports the notion that Australia’s largest markets are due for a correction.
“There’s people out there who think we’re going to have a world collapse on trading and that could be coming soon, like a GFC or worse, so there’s thoughts around that. I haven’t seen much of the reasoning behind the 7.5 per cent, it seems like a pretty exact number,” Mr Hunter said.
“Do I think there’s going to be a correction? Yeah, I do, and it will be when the rates start to rise, which this Westpac thing could be the start of that, but I certainly think there’s going to be a correction in Sydney and Melbourne most definitely, and more so Sydney. 7.5 per cent, that’s probably a bit exact for me, but I think there’s certainly going to be a correction and the higher the rates go the bigger the correction.”