14 August 2018
Property Market Collapse on the Horizon?
Local headlines have been dominated in recent times by talk of a property market correction. We think it is
clear that the Australian/NZ property markets are now in a period of price correction, but the key question
is how deep the price drop will be?
In Australia, house prices have already pulled back significantly in the hot markets of
Sydney & Melbourne. We looked at the Barfoot & Thompson house price data
yesterday and the median Auckland sale price has dropped -10% from its peak in March
In NZ, the Treasury and the Reserve Bank have both issued warnings to the
Government that growth is now starting to slow. Further, we believe that new
government policies including restricting immigration and foreign ownership, are also
likely to hit property prices, at least at the margins. In Australia, it is now harder for
Chinese nationals to get money out of China and Australia has increased stamp duty
While both the RBA and RBNZ seem unlikely to raise their cash rates from all-time lows,
interest rates are on the rise in the US. A major source of funding for the Australasian
banks is offshore funds, so higher US rates will impact on the ability of the banks to
lend. In Australia credit growth looks to be slowing and buying demand is moderating.
We have also seen a lot of anecdotal evidence that the banks are “tightening up” when
it comes to lending on both sides of the Tasman.
Finally, we think it is hard to argue that the Australasian property prices are not
overvalued, on a relative basis and compared to average income.
While we do not believe there will be a full-blown property collapse, our view is that
house prices will moderate over the next few years for the reasons above.
Stock sectors that will likely be impacted by a property market slowdown include the
property REITs, retirement villages, retail space, construction companies, and the
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