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'Property Armageddon' blasted as scaremongering

'Property Armageddon' blasted as scaremongering

by Sasha Karen | May 31, 2019 | 1 minute read

With some much-needed certainty returning to the market, the cries of “property Armageddon” seem like a distant memory. However, one buyer’s agent claims that the Australian property market was never in any danger.

Australia from space
May 31, 2019

The lead up to the 2019 federal election saw property play a key role, with discussions that potential negative gearing and capital gains taxes could have driven declines upwards of 40 per cent, which did generate some panic from property investors.

However, according to Right Property Group’s Victor Kumar, the market was never in any danger of reaching that point.

No chance of property Armageddon now

“There really is just the one fundamental that fully drives the property market, which is the availability of money. And [if] there isn’t liquid credit available, regardless of what fundamentals you have – whether it’s an oversupply, an undersupply, high yielding, massive infrastructure spend – if you can’t buy the property, its going to take a plunge,” Mr Kumar said.

As Australia has very liquid credit at the moment, property Armageddon is not likely to occur any time soon, Mr Kumar said. 

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Another factor that would contribute to a property Armageddon scenario would be an extremely large amount of an oversupply of properties, Mr Kumar said, and while there has been an excess of supply, it has not reached the levels necessary for large declines.

“We’ve got very strong fundamentals in our property market. We’ve got very strong fundamentals in our economy,” he said.

“We have one of the best economies available. Now, if you look at it from an inflation point of view, our inflation, whilst it is month-on-month on April was at zero, it isnt at a point where weve got runaway inflation.

“The last time we had a really major property decline, taking away the GFC, was in the [1988-89] market, which is the recession we had to have. And unemployment went into double digits at the time, and therefore, people lost the ability to hold onto property, they couldnt afford the loans because your interest rates started really tunnelling ahead and had several and immediate interest rate increases.”

Meanwhile, the opposite scenario is occurring at the moment, Mr Kumar said, where RBA governor Philip Lowe has flagged his intention to cut the interest rate sometime soon.

“So we’ve got all these factors that are pointing towards a property market thatll be a lot more buoyant rather than gluggy. Theres no doubt that the property market did reduce in its buoyancy because of the credit squeeze we had due to the APRA regulations,” he said.

“Weve got money thats been the cheapest its ever been since day dot, pretty much. And its likely that the cash rate will be reduced even more. Ive been investing for 20-off years, and I havent seen money this cheap for pretty much ever.”

While it may not be outnumbering or matching the oversupply, Australia’s solid population growth is yet another reason for Mr Kumar that the property market is not, or was not, in any danger of excessive declines.

“The population growth is increasing substantially because of one, the natural growth, but secondly, weve also got your migration, skilled migration that is certainly fuelling the demand, but it is highly unlikely that we will see any major declines in the property market,” he said.

No chance of property Armageddon before

Looking at the last four years, the government has spent billions of dollars on infrastructure, and plans to spend an extra $100 billion over the next 10 years, which for Mr Kumar is yet another factor that pointed to how Australia was never in fear of property Armageddon.

“If you look at Sydney, billions and billions of dollars being spent in terms of WestConnex, upgrade of hospitals, upgrade of freeways and all that sort of stuff, and weve got a new airport coming up,” he said.

“Look at Brisbane, same thing, weve got the harbour side development, weve got the rail network being worked on, and the airport being upgraded. You look at Melbourne, same thing, we got the rail network being upgraded, so that youve got the rail from the airport into the city, youve got a freeway upgraded, youve got the hospital upgrades happening in Melbourne as well, and these three markets are fairly big markets.

“Then you look at PerthPerth, TAS Perth, WA, thats slowly starting to have a resurgence via the mining sector, and also, they have spent a huge amount of money in infrastructure to shore up the economy at the local economy there as well.”

Mr Kumar said that with the combination of these projects, and future projects to come, it would be “highly unlikely” that there will be a major slowdown in the property market, barring something unseen coming out of left field.

'Property Armageddon' blasted as scaremongering
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