Property rises might be taking a breather after a year of superheated growth, but one investment banker has bad news for most aspiring Australian home owners: house prices will keep getting higher and the government will do nothing to prick the bubble – because the country simply can't afford it.
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And any hint of instability in China could send a wave of new money into the Australian market, says Saxo Capital Asia macro strategist Kay Van-Petersen.
Houses and apartments in Australia, particularly Sydney and Melbourne, have never been more expensive. The median house price in Sydney hit $1 million in July, said the Domain House Price Report, and investment bank Goldman Sachs estimates the markets in Sydney and Melbourne are almost 20 per cent overvalued.
House prices are on track to rise by a whopping 9.8pc this year, say numbers released this week by the Australian Bureau of Statistics, which showed national price growth was 4.7pc from the March to June quarters.
Morgan Stanley has said prices have peaked, but Mr Van-Petersen says they will continue to grind upwards and the government is unlikely to do anything about it.
"The government has to try and talk it down and say it's inflated, but at the same time all they can try and do is control the ongoing growth as best they can," he said. "If they wanted to prick it, they could, but Australia simply cannot afford to."
New Zealand and Singapore have enacted strong policies to force adjustments in housing markets. Mr Van-Petersen said Australia could easily deflate the bubble by pulling the stamp duty tax charged to foreign buyers from properties of more than $15 million to, say, $1.5 million.
“There is a lot of talk about Chinese money, but you guys haven't seen anything yet,” he said.
“Any wobble in China, whether it's political or a financial markets issue, will see serious money flooding out here."
The property market is one of the few areas of the economy that is growing adequately as terms of trade plummet and mining companies shed value because commodity prices have fallen in light of a slowing China.
"Australia can't afford for property to have a hard landing,” he said. “If housing prices bust, the banks will get hit hard. And then what is there? It's in everyone's interests right now."
In the International Monetary Fund's latest report on Australia, it raised the likely potential of a housing price correction, and called for greater investment in infrastructure to "relieve bottlenecks and housing supply constraints". The IMF said the big banks' strength and profitability would need more support if a severe adverse scenario occurred.
