If you get a spare 10 minutes today, make sure that you listen to the above interview with property developer/investor, Michael Drapac, from Tuesday’s Mornings With Jon Faine show.
Drapac is a prominent developer/investor that has been in business since the 1970s. In the mid-2000s, he held the biggest portfolio of CBD land in Melbourne (now sold-off). And now, he holds a multi-billion dollar land portfolio in South Eastern United States.
According to Drapac, Melbourne is home to one of the world’s biggest property bubble, and anyone that “believes this time is different is either naive, arrogant or dumb”.
Drapac goes on to explain how valuations are “so far away from historical norms and commercial norms that we’re in dangerous territory”, referencing among other things the extreme levels of household debt and the huge gap between prices and rents.
Drapac also blames the epic rise in valuations on various demand-side drivers, including tax policy (e.g. CGT discount and negative gearing), SMSFs gearing into property, foreign investors, the mining boom, and low interest rates (easy credit).
Drapac doesn’t know what will cause prices to correct back towards historical norms, but believes that it is inevitable. He expects that the catalyst will be some kind of “hidden punch” and that prices will probably “over correct to the downside”.
Again, I highly recommend that you listen to this interview.