Speaking on a panel at the Australian Securitisation Forum, Fitch Ratings managing director Ben McCarthy said the ratings agency has seen an increasing number of questions from international investors about the risks of Australian property.
“Our view is we are in a bubble. Our view is that investors should be well aware of the possibility that property prices could fall by 25 per cent, and should factor that in,” he said.
Mr McCarthy said he was struck by the fact that the average Australian property is worth about three times more than an American home.
“When you weigh that up, you can understand why people overseas are asking us questions about the Australian housing market,” he said.
Also on the panel was Smart Money Investment director Christopher Joye, who agreed that there is a bubble but that it is not a “massive concern”.
“Sydney and Melbourne are almost 60 per cent of the urban population. Within every bubble you always have sectors driving that asset class. In 2008 we had leveraged finance driving equities bubbles, in 2001 it was technology, and in 2013 to 2015 it has been Sydney and Melbourne,” he said.
Mr Joye remarked that he sees Australian property as “about 15 to 25 per cent overvalued”.
He added that we could see an “expectation-driven” adjustment in prices without seeing a big increase in arrears or a big increase in unemployment.
“The drawdown is likely to be in the range of 10 to 20 per cent. I don’t think it will be catastrophic at all.
“I think the recapitalisation of the banks, which is the biggest deleveraging of Australian banks in modern history, will put them in good stead to absorb any modest increase in arrears. It will be an expectation-driven adjustment in prices,” Mr Joye said.