The Australian Property Bubble | Financial Planning Services for Sydney and Kingsgrove
Recent losses in the property market have sent many an investor in to somewhat of a panic. Long-awaited, the decline in growth rates has been noted in speculative purchases and prices have duly fallen. It has been touted by some to be only the first salvo in a long-overdue market correction. With memories of 2008 still fresh in our minds, there is no shortage of panicky rhetoric.
There is little doubt of a bubble in the housing market. Gains of 50% or more in Sydney and Melbourne over the course of the last half-decade were unsustainable, as cheap credit and a pinched supply conspired to send housing prices in to the stratosphere. In real estate, the relatively inelastic supply curve is a major market distorter – you simply cannot create more housing on-demand. Housing takes time to build, even after approvals, funding, and buyers are all covered.
But the reality of the Australian housing market draws few parallels with that of our American cousins in 2007, and this decreases our chances of a housing market collapse to match theirs. As your financial planning service in Kingsgrove and for all of Sydney, we think there are some fundamental reasons why.
One of the biggest reasons that America’s housing market collapsed was due to its overextended credit market. Banks, and in fact, the vast majority of economists and pundits, viewed the housing market as nigh-unsinkable. This hubris led to a huge market for cheap sub-prime mortgage bonds, and in turn, to poor, incentive-driven lending practices, selling the dream, as it were, of home ownership. In Australia, we have long implemented a higher reserve ratio for our banks – meaning they must have cash available should even their largest investments sink beneath the waves.
ASIC and APRA
Our methods of oversight take a dim view of improper lending practices. Australia actually emerged relatively well from the credit crunch, but this didn’t stop APRA and ASIC from recommending tighter lending regulations. Australian banks had not delved in to truly risky, subprime mortgage loans to the same degree as the Americans had, primarily due to such oversight.
To boot, the recent Royal Commission saw the Big Four banks called to testify about such issues as misinformation and money laundering. They collectively copped an enormous fine for their misdeeds – putting them in no mood to run afoul of the regulator for the time being.
None of this negates the reality of a market correcting itself after a period of strong growth. This is one reason why TLK Partners is working to reduce our client’s exposure to certain areas of the housing market, in particular, the residential sector. But a full-blown collapse? It seems highly unlikely.
At TLK, we provide Kingsgrove, Beverly Hills, and the entirety of Sydney with financial planning services that can ensure you navigate the vagaries of the global marketplace, regardless of the state of the economy. Contact us today and let’s get you started on the path to prosperity.
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