The following is a reply to the scenario of 'what if there were a property bust'. This is not a prediction and not the only plausible reply:
Debt levels (private and govt) are a big worry. Perth is already in property correction (rents down 20-35%, prices down 10-40% depending on area). If I had a gun to my head, I'd say Sydney/Melbourne will be flat at best and in downturn soon enough if banks tighten lending and/or they raise rates due to higher costs (govt taxes or international liquidity issues). RBA says that banks are secure but that household spending is the big economic worry if disposable income is limited and goes mostly to servicing housing debt.
I think retail property almost always corrects down in a residential property collapse (Alaska in 1987 after mid 80's oil price collapse was my first look at empty shopping malls). I'm not so sure about office/industrial property but it makes sense that some sort of general recession would be on the cards in scenario where residential property collapse is in progress. Anything that involves high levels of debt generally falls in price if lending tightens or unemployment climbs.
ASX equity would be hit of course but hybrid prices would be hit much less. During GFC, the ASX all ords dropped about 50-55% and I think hybrid index dropped about 25-30%. I don't expect another GFC because I don't think liquidity will be as tight and I think banks will be able to keep spigots open to greater extent but the next global downturn is likely to see Australia hit harder than it was previously cause RBA has already eased to historically low rates and private plus government debt is higher (leaving less room for fiscal stimulation). Add to that the fact that China, USA and Europe don't have the same ammunition available as last time and whatever they throw at the problem is likely to have less impact per $ of Quantitative Easing.
