Australian housing a lonely survivor on a depressed world stage ADELE FERGUSON July 15, 2010
Sentiment among Australian property investors is turning increasingly bearish, according to the latest Investor Pulse poll conducted by Colmar Brunton and BusinessDay.
For the first time this year, the number of investors expecting house prices to remain flat or fall outweighs those who see prices rising.
The reason for the shift in sentiment is a dawning belief that Australian housing is in a bubble that at some point will burst and return to historic levels of affordability. When asked about recent comments by the famed US fund manager and property bubble expert, Jeremy Grantham, who described Australian and British property as
the only two of 34 bubbles he has studied that have not burst, 43 per cent of investors agreed that reversion to the mean would involve considerable pain.
Only 25 per cent of investors disagreed with the bubble diagnosis and 32 per cent remain undecided.
Investors are divided over what the likely trigger for the correction will be. Of those opting for the Grantham line, 28 per cent agreed with his argument that higher interest rates would cause the correction. Another 28 per cent believed China was the greatest risk, fearing that a faltering in Australia's No.1 commodity export destination was the key vulnerability for Australian housing values.
But the most pressing cause for concern was the structural issue of over-indebtedness, with 42 per cent of investors seeing this as the primary trigger for asset-price falls.
Investors are split about whether the recent dramatic falls in auction clearance rates in Sydney and Melbourne - from more than 80 per cent clearance rates to about 50 per cent - heralds the start of a property price correction. About 20 per cent of investors surveyed see the slowing as a normal hangover following the removal of the first-home buyers' grant, while another 23 per cent attribute the nervousness to the European debt crisis and slowing growth in the US and China.
Rising interest rates were surprisingly low on the list of causes, with only 10 per cent of investors blaming monetary policy for the slowdown. Moreover, a high 61 per cent of investors agreed interest rates were at the right level or still too low. There is little concern the Reserve Bank is overreacting to short-term rises in commodity prices despite a weakening in the global economy, as some commentators alleged in 2008 in the lead-up to the global financial crisis.
A high majority of 62 per cent of investors concluded that although a property price correction was clearly under way, it would most likely resemble the kind of long-term flattening of prices seen in the Sydney housing market after the effects of the first round of the first-home buyers' grant abated in 2003.
Investors do not believe a correction will be caused by recent shifts in national policy. The Gillard government's move away from a "Big Australia" policy undermines housing shortage arguments that have dominated the media for several years. Yet 69 per cent of investors saw this making no difference to prices over the long term. A massive 79 per cent of investors agreed with the recent decision by the federal government to re-introduce more restrictive rules about foreign investors buying Australian property. This follows a decision by the government last year to relax its rules on property ownership. This abolished mandatory reporting of such acquisitions in a bid to ''enhance flexibility in the market''.
Before the change, foreign investment in Australian residential property had already started increasing, up 33 per cent to $20.4 billion. There are suggestions more than 30 per cent of homes auctioned are being purchased by foreign speculators, adding to the bubble.
When asked about the effects of a global double-dip recession and a possible market sell-off, a majority of 46 per cent investors felt this would trigger a fall in property prices, narrowly ahead of those who thought such an outcome would have no affect or increase property investment.
