Key lessons from the property downturn

A property research groups says there are six key lessons to take away from Australia's recent property market downturn. Labor’s Federal election loss had eliminated the No. 1 risk to the property market, RiskWise Property Research said. This, combined with the high likelihood of interest rate cuts by the RBA this year, the introduction of the First Home Loan Deposit Scheme and APRA’s proposal to remove the 7 per cent ‘stress test’, replacing it with a 2.5 per cent buffer, would support the bottoming of the Sydney and Melbourne markets by the end of the year and then a gradual recovery, it said. It came as the Housing Industry Association highlighted Australian Bureau of Statistics figures showing a continued cooling in home building nationwide. Approvals for new homes in the three months to April 2019 (the latest data available) were 20.5 per cent down on the same time last year. April itself saw a 0.6 per cent fall in building approvals and the downturn in building activity was impacting other areas, with capital expenditure down 1.6 per cent in the March 2019 quarter, HIA chief economist Tim Reardon said. However, Queensland was bucking the trend, with seaonally adjusted building approvals in April 2019 up 11.3 per cent in the Sunshine State. Below are the six lessons RiskWise says can be taken from the recent property market downturn in Australia to avoid pain in the future. 1. RiskWise chief executive officer Doron Peleg said despite claims by some experts it had been on the verge of collapse, the market remained viable, despite price falls. And, with a “good arsenal of tools” by the policy-makers, there should be no crash. 2. A more aggressive monetary policy is required by the RBA. “The RBA should have cut interest rates already and should not have made statements declaring the next move being upwards when there were so many economic indicators and key risk indicators that should have been taken note of, such as the strong connection between dwelling prices, household wealth and spending,” Mr Peleg said. 3. Investors amplify credit and dwelling price cycles contributing to financial stability risks. “It is unrealistic to expect an increase in dwelling commencements when investor activity is significantly reduced. This is a key lesson for any policy-maker who proposes a policy with a major impact on investor demand, and the proposed taxation changes by Labor are a prime example for that.” 4. Off-the-plan units mainly in high-supply areas carry a high level of risk. Since mid-2017, RiskWise has been warning that many areas subject to unit oversupply carry high risk of low demand and price reductions. 5. It’s important to listen to mainstream economists and research houses which provide accurate and up-to-date predictions. This was particularly the case from the end of 2017 when it was obvious property prices would materially decrease 6. Affordable areas show more resilience than the top end of the market.

Key lessons from the property downturn

Industry Queensland

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