'Property Armageddon' blasted as scaremongering

No chance of property Armageddon now

“There really is just the one fundamental that fully drives the property market, which is the availability of money. And [if] there isn’t liquid credit available, regardless of what fundamentals you have – whether it’s an oversupply, an undersupply, high yielding, massive infrastructure spend – if you can’t buy the property, it’s going to take a plunge,” Mr Kumar said.

As Australia has very liquid credit at the moment, property Armageddon is not likely to occur any time soon, Mr Kumar said. 

Another factor that would contribute to a property Armageddon scenario would be an extremely large amount of an oversupply of properties, Mr Kumar said, and while there has been an excess of supply, it has not reached the levels necessary for large declines.

“We’ve got very strong fundamentals in our property market. We’ve got very strong fundamentals in our economy,” he said.

“We have one of the best economies available. Now, if you look at it from an inflation point of view, our inflation, whilst it is month-on-month on April was at zero, it isn’t at a point where we’ve got runaway inflation.

“The last time we had a really major property decline, taking away the GFC, was in the [1988-89] market, which is the recession we had to have. And unemployment went into double digits at the time, and therefore, people lost the ability to hold onto property, they couldn’t afford the loans because your interest rates started really tunnelling ahead and had several and immediate interest rate increases.”

Meanwhile, the opposite scenario is occurring at the moment, Mr Kumar said, where RBA governor Philip Lowe has flagged his intention to cut the interest rate sometime soon.

“So we’ve got all these factors that are pointing towards a property market that’ll be a lot more buoyant rather than gluggy. There’s no doubt that the property market did reduce in its buoyancy because of the credit squeeze we had due to the APRA regulations,” he said.

“We’ve got money that’s been the cheapest it’s ever been since day dot, pretty much. And it’s likely that the cash rate will be reduced even more. I’ve been investing for 20-off years, and I haven’t seen money this cheap for pretty much ever.”

While it may not be outnumbering or matching the oversupply, Australia’s solid population growth is yet another reason for Mr Kumar that the property market is not, or was not, in any danger of excessive declines.

“The population growth is increasing substantially because of one, the natural growth, but secondly, we’ve also got your migration, skilled migration that is certainly fuelling the demand, but it is highly unlikely that we will see any major declines in the property market,” he said.

No chance of property Armageddon before

Looking at the last four years, the government has spent billions of dollars on infrastructure, and plans to spend an extra $100 billion over the next 10 years, which for Mr Kumar is yet another factor that pointed to how Australia was never in fear of property Armageddon.

“If you look at Sydney, billions and billions of dollars being spent in terms of WestConnex, upgrade of hospitals, upgrade of freeways and all that sort of stuff, and we’ve got a new airport coming up,” he said.

“Look at Brisbane, same thing, we’ve got the harbour side development, we’ve got the rail network being worked on, and the airport being upgraded. You look at Melbourne, same thing, we got the rail network being upgraded, so that you’ve got the rail from the airport into the city, you’ve got a freeway upgraded, you’ve got the hospital upgrades happening in Melbourne as well, and these three markets are fairly big markets.

“Then you look at Perth, that’s slowly starting to have a resurgence via the mining sector, and also, they have spent a huge amount of money in infrastructure to shore up the economy at the local economy there as well.”

Mr Kumar said that with the combination of these projects, and future projects to come, it would be “highly unlikely” that there will be a major slowdown in the property market, barring something unseen coming out of left field.

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