The threat of a property bubble in Australia is a constant presence in the current economic climate, but perhaps there’s a different bubble we should be more concerned about.
According to some economists, Australians should be more concerned with how fast property prices are falling in China than with property investor speculation in Melbourne and Sydney.
If there was a sharp price drop in China, Australia would be in line to feel the impact if it meant a downturn in the Chinese economy.
Paul Gruenwald from Standard & Poor is chief economist for the Asia Pacific and told The Age Australia is in the middle of the pack on property price rises in recent times compared to other Asian countries.
“On balance I get far more queries about China than Australia,” he said.
He agreed there is potential for a correction in prices here, but as a risk he said the domestic market didn’t stand out.
“Less so than other countries in Asia, Australia has not imported US-style, ultra-low interest rates,” he said.
“The risk is the intersection of a non-bank credit boom going into housing,” he said.
“Prices are falling in 69 of 70 cities across China – everything is softening.”
“The No.1 exposed economy is Hong Kong, but Australia is right after that. Australia is the most-geared into the China investment story.”
Later this month the financial system inquiry will hand down its final report and banks expect the Australian Prudential Regulation Authority to say whether it will introduce macro-prudential measures to reduce property investment.
Around half of new lending for the last year has been for property investors, and rent has not risen with property values so if interest rates rise it may lead to a sudden sell-off.
Ken Hanton from National Australia Bank agreed that China is one of the potential shocks and real risks faced by Australia.
He talked down the prospect of a housing bubble when also speaking to The Age. He said if Australia is experiencing a housing bubble now, there must have been several over the last decade.
“Over the last 10 years we had national house price growth capping out and then falling. In 2007 to 2009 it capped out at just under 15 per cent growth,” he said.
“Subsequent falls saw growth rates fall to minus 5 per cent. This time around house price growth has slowed and it looks like it has capped out at 11 per cent.”