RICHARD ACKLAND: And the first homeowner's grant, has that had an effect?
CHRIS CATON: The first homeowner's grant, yes. And particularly the doubling of it if you bought a newly constructed home. That would have had some effect last year - but it is difficult to believe that...it is estimated that about 34,000 new home-owners bought houses before they otherwise would have, last year. That would have had a big effect on new construction, but it is difficult to believe it would have had much flow-on effect to the existing home-owners.
NARELLE HOOPER: And you can't pull forward forever, as we'll come to in a second. John Symond, you were quoted on the weekend as saying you were absolutely certain that this market has topped. Why are you absolutely certain?
JOHN SYMOND: Well, I guess I have seen property cycles - what happened in the '70s, early '80s, late '80s - and I guess experience is a wonderful thing. And we have put through thousands of mortgages on homes every month and I'm just reading that the signs are there that this market is at a stage where if the heat doesn't come out very quickly, we do stand a terrible chance of a bust. And just listening to Brendan, about 80% of new apartment blocks being built have been pre-sold, and if there is any correction whatsoever a lot of those people will have trouble settling those contracts.
RICHARD ACKLAND: Is this mainly in the category of people who are investors, John Symond?
JOHN SYMOND: One in three today, in the capital cities, close to one in three, are investors. But they are small, normal people. And that concerns me because that has been driven by low rates, it's been driven by the fact that superannuation - they either don't have any or superannuation isn't performing - and they are wanting to create their own superannuation and aggressive marketing in some cases.
RICHARD ACKLAND: And we have these deposit bonds which they don't actually have to...
JOHN SYMOND: Yes, my concern is they are normal, hard-working Australians, and anything can happen. And I think the small investors stand very exposed and the first homebuyer is very exposed. First homebuyers are borrowing $300,000-$350,000 on next to no deposit, they have got next to no equity. They have got no buffer. If it is a couple and the wife falls pregnant or they lose their job, they haven't got any buffer in that price.
RICHARD ACKLAND: Do you think it has peaked Brendan Crotty?
BRENDAN CROTTY: I think the issue is, though, that the market changes from segment to segment and if you took the other suburbs of Melbourne, for example, prices haven't gone up very much in the other suburbs of Melbourne because there is plenty of supply. The middle-distance and inner suburbs of Melbourne, that is where the prices have really rocketed. And it is very well capitalised and people with good incomes who are creating the spike in those prices. My belief is that this has been a boom in prices rather than volume. And if you take Perth, for example, prices in Perth haven't moved very much at all. Brisbane prices have really only started to move in the last 12 months.
NARELLE HOOPER: We should be more afraid of the headlines that we are reading, rather than the actual conditions.
BRENDAN CROTTY: Well, I think the issue is that there are some markets with which people should be very cautious, they should be very careful, if a market has run up 70 or 80% in the last say two or three years, then that is a market about which you should be very cautious. But other markets - prices haven't really moved a lot.
RICHARD ACKLAND: Chris what flow-on effect do you see this having in the rest of the economy, if a lot of air was to come out of this balloon and it was to fly around like a crazy thing at a birthday party?
CHRIS CATON: If we could go back to the point that John made, if it is topping out now, then that is a lot better, the air coming out now, if you like, then more air coming out in a year from now. If it is topping out now - and the thing with property bubbles, unlike, say, equity market bubbles, is that they don't always lead to a period of dramatic price fall. Now, again, you have to take Brendan's point that it is all localised and in some cases of course prices will fall. But we may well go from 20% house price inflation to, say, zero, rather than -20%, on average. But if we do do that we might go to zero for a long time. So essentially, at the micro-level, people would have realised they will have made mistaken investment decisions and that will have some impact. There will be a downward reassessment of wealth and that is as macro thing, across the whole economy. But I doubt if it happens now, I doubt it will be serious enough to have major macro-economic consequences. That is, to drag down consumer spending, consumer confidence etc. If it happens a year from now, after another 20% price rise, that would be different, I think.
RICHARD ACKLAND: Now I'm just interested in your experience, Brendan Crotty, with the apartments that you are building at the moment, would you know what proportion have been purchased by investors, and the apartments are empty - they just can't get a tenant?
BRENDAN CROTTY: Probably less that 1%. And the reason is very simple. If you have an apartment that is more than five years old, compared to a new apartment, but in most cases renters are comparing apartments. If you take the age of the apartment stock in Sydney it is at least 20 years. So if you are comparing an apartment that is at least 20 years old to a brand new apartment, and this happens all the time.
NARELLE HOOPER: The Federal Government is now saying "We need to make it easier for people to get into homes. And the Menzies Research Centre's has come up with this idea of sharing equity with your lender here, or with the banks. What are your thoughts on that? Does it have some merit, or does it rely on a rising market to actually work?
BRENDAN CROTTY: I think the reality is that the Menzies Research Centre relies entirely on a rising market. I think there is two things about that - there is a group of people which represent about 20%-30% of generation X and generation Y, who will, over time, need some significant assistance because they cannot afford a mortgage and there is this gap between the median price of housing and the mortgage that they can get. So, something will have to be done for those people.
NARELLE HOOPER: What are your thoughts John?
JOHN SYMOND: Well, I am very pro looking at any new way of helping, particularly first homebuyers getting home ownership. But I agree with Brendan and it is assuming that house prices will continue and I think timing will play a very important role. I don't believe that the timing would be right to roll out an initiative like that when there is so much heat. But my real concern with the overall market is everybody seems to have forgotten what happened 10 years ago. Everybody is talking about how much their houses have gone up - double, $200,000, $300,000. And they seem to feel that Australia is totally insulated from the global downturn.
RICHARD ACKLAND: Well this is the very issue that Ian Macfarlane was talking about at the Reserve Bank, back in May. That we had to have the rate rises to take the sting out of housing. And yet we had two rate rises, nothing further. What happens if rates don't go up again.
CHRIS CATON: Well, I think I need to leap to Mr Macfarlane's defence. My view is that we raised rates for a number of reasons - and the housing bubble was highlighted. But since then he has said that they are not going raise rates just to burst a housing bubble, but they are not going to stop talking about it either. Now, rates are on hold in Australia at the moment, and will be for the rest of the year, reason: they are no longer certain about the global economy and also of course the rather depressing effects of the drought - so yes, whatever happens in housing is going to take place right now against a background of rates which are going absolutely nowhere for the rest of the year.
RICHARD ACKLAND: Look, thank you very much for that Chris Caton. Also to John Symond and to Brendan Crotty for a splendid discussion.
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