I watched with interest the Business Show on the SBS on Sunday, and they had a very interesting panel discussion on property prices.
I have cut and pasted the text below, and for those who are interested (and also to quote the source!) it was taken from:
http://www.sbs.com.au/business/index.html?tid=496 . Sorry it is so long, but it is very interesting.
What do people think?
asy
Sorry, it was too long, continued on next post...
I have cut and pasted the text below, and for those who are interested (and also to quote the source!) it was taken from:
http://www.sbs.com.au/business/index.html?tid=496 . Sorry it is so long, but it is very interesting.
What do people think?
asy
PROPERTY BUBBLE PANEL DISCUSSION (September 22, 2002): RICHARD ACKLAND: Quite suddenly, everyone is being told that the current housing bubble is soon to pop. Maybe it has been a little slow in arriving, since housing prices in Australia have climbed 50% in the last five years in real terms, and nearly 20% in the last year. In Melbourne it has been more giddy, where the boom has pushed prices up 80% over the last five years. Adelaide 33%, Canberra 28%, Perth about 26% and Brisbane 20%. The gloomy old Commonwealth Bank has wagged its finger at people who have forgotten that price rises don't always go on for ever.
DAVID MURRAY, CHIEF EXECUTIVE, COMMONWEALTH BANK: There is excessive optimism on behalf of ordinary people in Australia...amongst ordinary people in Australia about the progress of their house price.
NARELLE HOOPER: But it is investors who are causing much of the trouble. Since the last property slump in the early '90s housing finance for owner/occupiers has risen almost threefold - but look at the huge run-up in finance for investors over the same period. In fact the last two years look a lot like the Nasdaq looked just before it crashed. Rental vacancy rates are rising and rents are falling. Westpac Bank says earnings from investment housing are the lowest in 40 years.
RICHARD ACKLAND: The Reserve Bank put it gingerly, when it said: "It is more likely that any assumption by investors that future capital gains can be assured will have to go some revision."
RICHARD ACKLAND: To get a proper grip on that revision, and how uncomfortable it might be, we are joined by John Symond, who is the founder and managing director of Aussie Home Loans. Brendan Crotty, the founder and managing director of one of our largest apartment developers Australand. And Chris Caton who is the chief economist for BT Financial Group.
RICHARD ACKLAND: John Symond, before we get to a sober reassessment of what is happening now, could you give us some sort of picture of what has been happening and how long this boom in housing has been going on.
JOHN SYMOND, MD, AUSSIE HOME LOANS: Well I think the boom in real estate, across the board, has probably been going for the best part of four years, in some areas five years, Melbourne started probably a year after Sydney. So, certainly, it has been healthy and very robust and it's been the flavour.
RICHARD ACKLAND: How did it compare to the previous property boom at the end of the 1980s?
JOHN SYMOND: Well there is one huge difference, which is that interest rates were 18%, 17%, 20%. And in this case it is the lowest interest rates, we are close to the lowest interest rates in 30 or 40 years. So, there are huge differences in dynamics between the last property boom and bust and certainly this boom.
RICHARD ACKLAND: Brendan, what has been your experience in this period with apartment construction?
BRENDAN CROTTY, MD, AUSTRALLAND LTD: Well, apartment construction in Melbourne shot up quite a lot, in response to an almost zero construction of apartments for a period of almost 10 years. But the one thing that people shouldn't ignore is that every apartment block that you can see under construction – there’s at least 80% of those apartments are pre-sold.
NARELLE HOOPER: Hmm, not much different to the position in the late '80s. Chris Caton, from your perspective, is this the strongest housing boom we have ever seen, do you think?
CHRIS CATON, CHIEF ECONOMIST, BT FINANCIAL GROUP: Well, ever is a long time. It is certainly one of the strongest in Australia - and relative to the one that most people remember in the late '80s, I guess you would say that that one was shorter and sharper, and also more localised. This one is spread across pretty much all capital cities.
NARELLE HOOPER: And in a lot of the regional.
RICHARD ACKLAND: And what are the conditions that are fuelling it?
CHRIS CATON: I suppose, as John mentioned, low interest rates has got to be number one. And number two - booms tend to beget themselves, if you like. Once everybody sees property prices rising, they convince themselves that it is going to continue. Therefore two things happen - first of all, if you want to get in, you have got to get in now and secondly you want to get in, because you know prices are going to rise after you get in. So, you know, a boom has its own dynamics.
Sorry, it was too long, continued on next post...