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.”
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.”
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.