Powered by MOMENTUM MEDIA
subscribe to our newsletter

‘Orderly unwinding’ in housing market likely: S&P

A “sharp correction” in the housing market is unlikely to occur in the next two years, but an “orderly unwinding” is on the cards, S&P has said.

Sharad Jain, director of financial services ratings at S&P Global Ratings, has predicted an “orderly unwinding” in the property market as a result of regulatory actions, coupled with Australia’s track record in responding to “property crises”.

He was speaking at an S&P ­­property forecast event on 3 August when he made the comments. Mr Jain said that there are a “number of factors that will continue the property crisis in Australia, and a lot of those are factors that are similar to what we have seen that have contributed to the price boom”.

The director added that the “relative attractiveness” of property as an asset class for both domestic and foreign buyers would continue for “some time”, meaning a sharp correction in the market was not likely.

“What we mean by orderly unwind is that either there will be small corrections in property prices over the next 18–24 months, or more likely there will be a slowdown in the growth rate so that the economic growth will occur [in a way] that's more consistent with the property prices.”

Advertisement
Advertisement

However, he warned that “elevated risks” in the banking sector were prevalent. He explained that for banks, property was the most “critical sector” in terms of the asset elements of their business, and as such, risks in the property sector are “elevated as they affect the banking system”.

John Arentz, GM treasury and planning at Stockland, noted that the market was experiencing an “elongated cycle”, but added that the market was likely to remain “reasonably resilient” in the next year.

“We’re still seeing demand for residential products so we're expecting the market to . . . be reasonably buoyant for the next 12 months.”

Paul Mirams, partner at KordaMentha, added that the property market had been “at 11 o’clock . . . for a couple of years” in terms of the property compass.

“It's a very long 11 o’clock this time around and it may go back to 10 o’clock. But it's been 11 o’clock for a very long time.”

PROMOTED CONTENT


The sentiment was echoed by Tim Jarvis, senior credit analyst at AMP Capital investors, who predicted that due to a tightly tuned market in regards to macroprudential regulations, it would be a case of “spot fires” occurring in the sector.

“I think they [spot fires] are likely to emerge really soon [in regards to] inner-city apartments, changes to incentives in Victoria. . . . I think there's a real risk that we might see some spot fires emerge in that space, but I don't know that it's that material from a bank perspective.”

According to an S&P audience poll conducted at the event, 62.6 per cent of respondents (52 votes of 83) expect house prices to increase in the next 12 months.

Meanwhile, 85.3 per cent (64 respondents of 75) expressed concern that the “inflated Australian property market” would impact the banking system.

[Related: KordaMentha blasts ‘primitive’ response to housing affordability]

‘Orderly unwinding’ in housing market likely: S&P
mortgagebusiness

Latest News

US-based global asset manager Ares Management has made a non-binding conditional proposal to bid for 100 per cent of AMP Ltd shares. ...

The major bank’s FY20 cash profit has plummeted 42 per cent on the prior comparable period, driven by full-year credit impairment charges ...

A former property developer has been found guilty of fraud in relation to obtaining funds from SMSF investors following an ASIC investigatio...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Court cases and penalties

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.