Broad property market crash is unlikely, says AMP’s Shane Oliver

A broad property bust is “unlikely” but apartment prices could dive as much as 20pc in some cities, says Shane Oliver.

Cranes over apartment buildings in Melbourne’s Docklands. (Picture: Jay Town)

AMP Capital chief economist Shane Oliver remains confident a broad property market crash is “unlikely” despite his expectation apartment prices in Sydney and Melbourne will plunge as much as 20 per cent in around two years.

In his latest note on the housing market, Dr Oliver said people had long spruiked a property market crash and while there was an “increasing risk” given surging prices in Melbourne and Sydney and a potential glut of apartments, several reasons cast doubt on the argument.

Included among the reasons to question the chances of a more than 20 per cent collapse were the lack of a generalised oversupply, record-low interest rates keeping repayments down and more robust lending standards as against countries hit by the GFC.

A crash would either rely on a recession pushing the jobless rate higher, a surge in interest rates raising mortgage stress or an oversupply that would require the construction boom to continue for several more years. All events are currently seen as unlikely but price falls in the order of 5 per cent for the broader market are still tipped for 2018.

“Nationwide price falls are unlikely until the RBA starts to raise interest rates again and this is unlikely before 2018, at which point we are likely to see a 5 per cent or so pullback in property prices as was seen in the 2009 and 2011 down cycles,” Dr Oliver said.

“Anything worse would likely require much higher interest rates or recession both of which are unlikely.

“However, it’s dangerous to generalise.”

Dr Oliver said the skew in the boom to Sydney and Melbourne left the nation’s two most populous cities exposed to a greater level of risk, with price falls of 5 to 10 per cent seen possible around 2018.

Elsewhere, moderate growth is tipped in Hobart, Brisbane, Adelaide and Canberra until a “less severe down cycle (as against Melbourne and Sydney) in or around 2018”, while price weakness related to the end of the mining boom in Perth and Darwin is seen likely to subside next year.

Apartments in Melbourne and Sydney were tagged as the major potential stress point as a rise in developments shows no signs of abating despite worries around demand.

At current rates approvals to build apartments are running at levels twice the normal rate.

“Units are at much greater risk given surging supply and this could see unit prices in parts of Sydney and Melbourne fall by 15-20 per cent as investor interest fades as rents fall,” Dr Oliver said.