According to
Harry Dent, the Australian property market 'could' halve in value - at least in overpriced areas like Sydney just like California because of the European debt crisis.
"In Sydney, the average house price is over nine times the average income, which is clearly unsustainable, Dent argues".
There are several problems with this story:
1. The probable correlation between a book sale and 'impending doom'....but I have not looked because I'm just cynical and its not a causal relationship anyway. You'd have to look at his arguments. Its possible that he's just ignorant.
2. Australia is in far better conditions than the United States
Australian debt is mostly private sector debt and its mostly underwritten by tangible assets - houses in areas where people want to live, and in a country which a great many people wish they could live. It is also a regulated property market, with government regulating land releases. The government is thus able to regulate prices by turning on the tap at two places - immigration or restriction of land supply. In contrast, Americans can move from a high demand centre like California to a low demand area like the fringes of Seattle or Sacramento and still keep a job. In Australia, you'd have to live 300km from Sydney to get cheap housing, i.e. Dunedoo or Taree. Yes, its extortion, but no one thinks of it like that.
The other big consideration is national income. Australia is well-positioned to supply commodities to the tiger nations of Asia, who are still growing at 5-10% per annum. We need to acknowledge that whilst the USA and Western nations are struggling, the developing world is undergoing an industrial revolution running at a faster pace than the one in the 1700s. The reason is clear - the absence or indifference to ineffectual regulation, and the impact of technology and structurally created cheap labour after decades of coercive statist government in this region. Look at Japan in the 1950s to 1970s; well China and India make a 20x bigger difference. US spending stimulated China; but rest assured that after an adjustment of say 5-7 years China will be making up for the foibles in the USA. Australia and Russia are in the best position to supply materials - relatively better than Brazil, Canada and South Africa. There are plans for mineral & energy investment in Australia of $750 billion - investments which could effectively double annual GDP. This is not going to occur overnight, but even if it takes 20 years, the capital inflows from China and elsewhere will be huge in itself, and for the 20mil people, it means more extortion. i.e. Immigrants will be ripped off as they pay full price for property. Except that will not care because they will have a job, and spare cash to send home to relatives in Asia.
This all means of course that Australia will have strong capital inflows and a strong dollar. Even if commodity prices or volumes come under some pressure, we need to appreciate that the Australian dollar will adjust accordingly. This market is secure. I think you can expect that governments will attempt to keep property prices stable, i.e. Expect property prices to move sideways for the next 10 years, or near so. With the Sydney market affordability index around 10x earnings - it is not going to fall, but with interest rates at low levels, I would not be expecting it to rise given the high levels of indebtedness and the return to conservative borrowing practices. This conservatism reflects foreign market factors rather than Australian considerations.
If you are considering buying a house in Australia; think again. You are buying into a political system based on extortion. If you do so, you simply need to find a rural town which is depopulating but finding work might be the greater concern. Try Taree, NSW or some of the wealthier rural towns based on cotton and beef. If you like beaches, try Grafton, maybe Kempsey (famous for its prison). Failing that; try NZ after renting for 5-10 years in Australia. In a decade, NZ will probably discover oil, and it will be as wealthy as Australia in relative terms. Of well, they live in hope, and its about as much as you can expect as well given the
tyranny of majoritism.
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