A popular US financial commentator claims that both Sydney and Melbourne are host to huge property bubbles which are soon set to burst as a result of economic meltdown in China.
Harry Dent Jr., a popular US financial commentator and author of the New York Times bestseller The Great Depression Ahead, said that most of Australia’s major cities suffer from property bubbles which are on the verge of bursting.
During a promotional tour in Australia for his new book The Demographic Cliff, Dent said that bubbles reach their peak once markets become severely unaffordable, as is currently the case in Melbourne and Sydney, where home prices are around ten times the average income.
Dent said that Melbourne has the biggest bubble, with Sydney, Brisbane and Perth also all in parlous condition. Adelaide and other cities, however, are not quite as bad.
The veteran doomsayer expects the chief trigger for the bursting of Australia’s property bubble to be a crash in the stock market, which would in turn be related to the economic meltdown mainland China, to which the commodity-driven Australian economy is so inextricably linked.
Dent sees the “China bubble” bursting at some point next year and triggering dramatic chain reactions throughout the rest of the global economy given that it is “the greatest bubble…the most extreme in valuations.”
According to Dent Australian real estate will plunge by between 30 and 50 per cent, while other industrialized nations will be hit even harder, with prices falling in the US by as much as 65 per cent.
While several other leading economists, including New York University professor Nouriel Roubini and Noble prize winner Robert Shiller, lend credence to Dent’s opinions, many Australia experts beg to differ.
Peter Bushby, president of the Real Estate Institute of Australia, points out that Dents predictions focus disproportionately on certain hot spots such as inner Sydney, failing to provide a representative picture of the market as a whole.
Other factors which favour the continued health of Australia’s real estate markets include the limited amount of land release in the country’s few major cities, almost all of which are coastal; high levels of immigration, and a tax system which is favourable to property investment and home ownership.