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Recently I had a discussion with a friend of mine who is into investing. He owns 2 properties in Melbourne, one is his residential property, the other, is investment. We were discussing about the property market in general.

His remark was quite memorable "Wait until there’s some blood on the streets. That is when you enter the market." And he speculated that may happen in 2007. Now, the consensus is that property in Australia in general is overpriced. I tend to agree with this sort of analysis. Considering high level of debt. Low occupancy rates. Low housing affordability. It is hard to see that prices will go up further.

However, a quick look at property prices in sydney reveals that median prices hovers around at AUD$500k which is almost twice of nation’s average. My guess is that in Sydney there are plenty of high end properties supplies. Now, it is quite common that people use that sort of number to justify over pricing the properties. Which leads to a bubble economy. Question is: is it really a bubble economy? If yes, will it burst soon?

My friend’s take is that it may happen in 2007. On the other hand, I think if it does happen, it won’t be as soon as 2007. But having witnessed several economic meltdown (97/98 asian crisis, 01 internet burst) - it can happen very rapidly. But I think property market is rather different. Unlike loans / stocks which have no material form. Property is real, you can see it, you can live in it, you can touch it, smell it. And things that are real tend to hold their values more. Even if a crash happens, it won’t be spectacular. It may be just a minor devaluation.

The one thing that quite possibly can cause a major crash is economic downturn. A recession. When people start to lose their jobs, then they are forced to sell. This can trigger a domino effect which may bring the entire market down. The key rests on Australia’s economic outlook. However, seeing the worrying signs of consumption credits (that is money ppl borrow to spend on consumptions) that keeps ballooning. There’s a real risk that the recent economic growth had been financed mainly by debts. And when it’s time to pay, there may be a catastrophic consequences.

What’s your take on this?

This entry was posted on Friday, July 14th, 2006 at 9:05 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.