Could the Australian property market be in trouble?

Could the Australian property market be in trouble?

The US investment bank Morgan Stanley maintains that Australia’s housing boom has peaked. The bank cites a drop in immigration levels, tighter controls by banks and “frothy” prices as reasons for the slowdown, all of which have intensified the risk of a recession.

Alarm bells have been ringing for much of the past year, and Morgan Stanley is among a growing number of investment banks to have shown concern over rocketing property prices in the country. There is also growing unease with regard to the home-building boom that Australia is experiencing, which prompted Nigel Stapledon, the head of real estate research at the University of New South Wales, to comment that there is a “tsunami of home supply” coming.

He raises a good point. It’s been estimated that, as things stand, cities such as Melbourne already have an oversupply of dwellings, particularly inner-city apartments. Despite this, property developers are still building. Brisbane is in a similar position and it’s been noted that this city too, already has an oversupply. It appears Sydney is on slightly stronger ground, but even here, where there is a massive demand, it’s been estimated that there will be an oversupply of apartments from this year onwards.

Although bankers may be getting a little twitchy, a survey conducted late last year by the New South Wales division of the Australian Property Institute found that people – including fund managers, financiers and property analysts – believed that the surge in prices would continue. Interestingly 44% thought that prices in Sydney would continue to grow for the next six months, while 33% expected the trend to continue for at least another year.

The picture was a little darker for the Melbourne market, where only half of those polled expected the increase in prices to continue for another six months. A mere 6% of the respondents believed that the boom in Sydney and Melbourne would run for another two years.

 

Words: Lea Jacobs

 

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