Property market could be in for hard landing

Adam Smith 3 June 2016

housing bubbleThe Australian property market is about to crash, if one global organisation is to be believed.

The Organisation for Economic Cooperation and Development (OECD) has warned Australia may face a “dramatic and destabilising” end to the property market boom, the Australian Financial Review has reported. The think tank said a wave of apartment construction could put the property market at risk of a crash.

"Domestically, the unwinding of housing market tensions to date may presage dramatic and destabilising developments, rather than herald a soft landing," the OECD said.

According to the AFR, the group called for an increase to GST, and said the federal election was adding to Australia’s economic uncertainty.

The OECD’s prediction comes on the heels of new figures from CoreLogic that showed strong house price growth for May. In a separate report, CoreLogic voiced concerns about high levels of apartment construction activity, warning that settlements could be at risk due to an oversupply and falling unit prices.

Economists have speculated that a resurgent property market and strengthening investor activity could lead to further regulatory tightening, The AFR said. The Australian Prudential Regulation Authority (APRA) previously warned banks to limit their investor lending growth to 10%. HSBC chief economist Paul Bloxham has warned more limits may be necessary, the AFR reported.

"The turning up of the dial on prudential settings over the last 18 months has seen some cooling in housing market activity over that period, but you could also argue the revival of exuberance in Sydney in the past couple of months may mean more measures need to be put in place,” Bloxham said.

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