Shane Oliver: Aussie property market in “precarious situation”

A month after trimming his forecast for Australian dwelling value declines to between 5% and 10%, AMP chief economist Shane Oliver has turned bearish owing to the spike in COVID-19 infections across Melbourne:

Dr Oliver said the uptick in virus cases in Melbourne would further weaken the market and add downward pressure to housing prices.

“I thought a month ago we’ve managed to get the virus under control, which might have removed some of the downside risks, but the new virus outbreak has reopened those risks”…

“The lockdown poses a renewed threat to the economy, which ultimately is a negative for the property market.

“I was looking for around 10 per cent price drops in Melbourne and Sydney. With the virus outbreak, the risk of a 20 per cent house price fall has emerged again.

“The market is in a pretty precarious situation at the moment.”

For those of you that may have missed it, the MB team discussed the risks facing the Australian housing market in last Thursday’s podcast with our partners at Nucleus Wealth:

Topics include:

  • Coronavirus a unique challenge to Australian property and growth model as a whole
  • Mass immigration and international students
  • Foreign buyers’ role in Australian property
  • Rental crash
  • 1.3 million loss making landlords
  • Policy exhaustion and options

View the webinar slides here.

Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments

  1. SoCalSurfCreeperMEMBER

    Is 1.3 million loss making landlords for real? Insane. Negative gearing should be limited to those with incomes below a certain threshold. Say… $100k. The rest should have to defer the deductibility of their losses until after sale, and then offset their income with those losses over a long period. Say…. 5 years. This disincentivizes speculation by delaying deductions against income while providing a buffer to those that find themselves in this situation through misfortune.

    • BubbleyMEMBER

      From someone who had way too much fun in the 90’s and memory might not be 100% accurate…

      I thought Aus had 1.1 million property investors?

      • SoCalSurfCreeperMEMBER

        1.3 million loss making is from the webinar deck. I assume accurate but won’t be verifying. Also addled from the 90’s

  2. “I was looking for around 10 per cent price drops in Melbourne and Sydney. With the virus outbreak, the risk of a 20 per cent house price fall has emerged again.”

    2m unemployed and house prices just having a correction rather then a crash.

    When this is over, Australian society will resemble Brazil’s. Massive homelessness among the former middle class, and an elite flying Uber helicopters above to avoid car jackings.

          • Jumping jack flash

            Whatever is required to afford a median home on a median wage without the need for debt and saving a reasonable amount of money, say, up to 30% over 5 – 10 years.

            There’s stil a ton of insanity.

    • This is why we see Scumo slobbering around his geasy, greedy chops like a pig waiting to be fed thanks to a gift from Hillsong heaen “shovel ready” immigration of rich Hong-Kong people.

  3. BradleyMEMBER

    I’d say Victorian high rise property will be especially hard hit. I laugh in their general direction!

  4. GlendaFMEMBER

    Again, wil this be picked up in the MSM? So that the general public can get some idea of what lays ahead and perhaps even prepare???

    Probably not, coz we all know that if the general public get a whiff of this then its game over, and SFM can’t have that!

    • DominicMEMBER

      Isn’t Shane the go-to voice of reason for the MSM?

      Half the time these comments are a simple plea to the authorities to ‘do something’.

      Plead all you like, mofos

  5. John Cathcart

    Not so long ago (<3 months), Oliver was quite chirpy. Now he's hedging his bets.

  6. I missed this one. Last month ApRA changed its re-hypothecation rules. Property falls, no bank capital issue.

    “APS 112 requires an ADI to revalue property offered as security for residential mortgages when it becomes aware of a material change in the value of property in an area or region. APRA confirms that, consistent with its future intention of removing this requirement from the ADI capital framework, ADIs utilising the standardised approach to credit risk will not be expected to revalue residential mortgage property for the purpose of meeting the requirements of APS 112”

    • david collyerMEMBER

      Thanks P13.

      This can delay, not extinguish valuation. Australia-wide, state/muni governments value property for rates and land tax every two years. Vic hypothecates every year. If current price trends continue, the falls will show here. Change cannot be ignored for long.

      Has government finally run out of naive FHB’s to throw under the bus?

    • “ADIs utilising the standardised approach to credit risk”..
      but the big guys dont use the standardised approach to credit risk right? They use that weighted risk something something blabla.

  7. Display NameMEMBER

    Precarious because house prices may go down? FFS. We can only have a market on the upside? Any other time we have to bail it out. I had thought this is what markets do. If you juice the market with cheap credit and dodgy tax law to the upside, there is an inevitable downside. Suck it in.

    • SoMPLSBoyMEMBER

      Yer right but they can’t let the market swing its sword to slash values; at least not yet.
      Just about everything is hinged on rising dwelling values- new car sales, private school fees, 2d and 3rd homes, aged care deposits, Alaska and Chilean cruise, trip domestically etc.
      It’s how Straya(ns) got richer than they ever thought possible!
      But they never modeled a pandemic and what it might do to credit appetites and I suspect it won’t be long before we begin to hear cries of “the thing is collapsing” and “run for your lives”!

      • Jumping jack flash

        Correct
        And if houses fall too far it will trigger rising interest rates which would be disastrous.
        Our banks have banks and those banks charge interest too, and have measures of risks on our ball of nonproductive mortgage debt we call an economy.

  8. Wonder if the Fat Wolverine is still sticking to his last prediction on property price falls?

  9. I think that if people were speaking honestly 20% falls in Melbourne would represent a lucky escape.

    • There are certain Post codes in Melbourne where falls are 50+% already. Next week 60+%.

        • call me ArtieMEMBER

          Just around the corner. There was a really nice little federation weatherboard but a tree fell on it. Down by 50%
          (I am just being stupid)

  10. Reus's largeMEMBER

    For Australia to become competitive in the new post WhuFlu world we need property prices to drop to 20% of what they are now, that is the only way that people are going to be able to afford to spend and start productive businesses again without being saddled by enormous rents (rent seekers)

  11. kannigetMEMBER

    If the value of property was in any way shape or form determined by economic fundamentals then I would say 5 – 10% is bullish not bearish…

  12. Rorke's DriftMEMBER

    How attractive is apartment living when, if someone in the building gets a flu or head cold or other contagious illness, 500 police are sent to trap everyone inside the building into home detention. Who wants to even visit an apartment building if it can get locked down with you inside. That casual friend you thought you might spend a few hours with suddenly becomes your cellmate.

    All apartment towers are now dangerous to enter let alone buy for long term investment. If pandemics are going to be a thing then high density multi-family dwellings are no longer viable as a product in the market. The higher the build, the less balconies or natural ventilation or lack of sunlight the worst. On current social trends 90% falls would still be expensive for the eventual slum-only tenants.

    • Was thinking the high rise lockdowns will have a stronger effect on negative sentiment than even the flammable cladding debacle, because even though they’re in public housing the average mug investor isn’t going to be able to distinguish the difference and the government hasn’t gone to any length in trying to keep this a secret.