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Investors start to fear a bursting property bubble

With all the mixed messages from the media and various doomsday economists talking the market down at present, it’s no wonder property investors are becoming more fearful of an Australian housing bubble that’s set to burst in a big way.
A recent article published in The Age reports that, according to the latest Investor Pulse poll conducted by Colmar Brunton and Business Day, investor confidence is beginning to wane. The number of investors expecting house prices to remain flat or fall now outweighs those who think prices will rise for the first time this year.
Ferguson says, “The fundamental reason for the shift in sentiment is a dawning belief that Australian housing is in a ‘bubble’ that at some point will burst and return to historic levels of affordability.”
The survey was based on comments by outspoken US fund manager Jeremy Grantham, who has been all over the press in recent times suggesting that Australian and British property markets are the only two of 34 housing bubbles that are yet to burst.
When asked their opinion on this statement; 43% of investors “agreed that reversion to the mean would involve considerable pain,” while 25%, “disagreed with the bubble diagnosis and 32 per cent were undecided,” said Ferguson.
When questioned about what they believed would cause such a correction, 28% of investors felt rising interest rates would be the trigger, 28% thought a destabilising Chinese economy (being our number one commodity export market) posed the biggest threat and 42% were concerned that over-indebtedness would see values decline.
With regard to the recent dramatic decline in auction clearance rates for Sydney and Melbourne; “About 20 per cent of investors surveyed saw the slowing as a normal hangover following the removal of the first home buyers grant, while another 23 per cent attributed the general nervousness to the European debt crisis and slowing growth in the US and China.”
61% of investors felt the Reserve Bank is doing a good job maintaining interest rates at the right level or a little below where they should be given the overall economy and only 10% of those surveyed felt that “monetary policy” was to blame for the cooling property market.
Further results from the survey revealed;
• 62% felt that although a price correction is occurring, it will most likely resemble a long term flattening of prices rather than a bursting bubble.
• 69% believed the federal government’s changing attitude to immigration and a “Big Australia” policy would make no difference to prices over the long term and was unlikely to undermine the housing shortage arguments from many commentators over the past few years that underpin predictions of rising property prices in the long term.
• 55% doubted the new minerals resources tax would make much difference to property values.
• 46% of investors thought, “the effects of a global double-dip recession and a possible selloff in the share market…would trigger a fall in property prices.”
An intersting survey and results but remember – the crowd is usually either wrong or late. That’s why the rich keep getting richer and the average Australian has diffculty becoming financially independent.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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