Three Economic Triggers For A Property Boom

Australia may witness an unprecedented property boom in near future, feels Robert Gottliebsen, a veteran columnist. Jonathan Chancellor for the Property Observer focuses on the reasons which convince Gottliebsen.

Trigger #1: Low cash rate pushing demand

Low cash rates will pull investors off their saving mindset (one that they have built as a pre-emptive measure against GFC-like crisis). All the money will find its way into the property market. Greater borrowing incentives will ensure that demands rise.

Trigger #2: Supply on the lower side

Supply, though, will not be enough to satiate the rise in demand because banks will not be too willing to lend funds to builders- GFC has made banks much more observant in regards to bad loans.

With demand outpacing supply in a big way, prices will inevitably shoot for the stars.

Trigger #3: Negative gearing

Also, feels Gottliebsen, negative gearing will find firm footing in the taxpayers’ arena and it will help in subsidising the property boom.

This development may not be all rosy, fears the veteran columnist. The economy will have to pass through the sword and the governor, sometime in future, will be compelled to validate his decision of cutting the rates atypically.

Slow supply may choke demand

All this because the demand mainly triggered in the inner city areas won’t be self-sustainable at any rate. While it will need support from the supply side, the supply chain will move excruciatingly slowly- red tape, compliance issues, problems of fund procurement for developers and snail-pace approvals, being main culprits.

Home-grown investors, foreign investors and expats will all join the party

Market demand will be fuelled mostly by investors (confident of their self-managed funds) and expats. Foreign investors will also come into play in a big way, what with Asia targeting the Australian property scene.

Grant-driven first home buyer movement will also be worth taking note of.

You can read the original article here.

I think Gottliebsen has analysed the situation quite objectively and shall I say  smartly. However, prophesies in the property market stand vulnerable to being skewed because so much of what we refer to as “reaction to market stimulus” keeps changing.

The same might happen in this case. While slow supply may asphyxiate demand for a short while, reforms in the area of  broadacre lands and mini plots and construction industry, freed from red-tape, might stabilise the demand-supply gap.

Is shortage of supply a boon or a curse in your opinion?