Australian housing prices 'a real worry' and could fall 15% in next two years: Investec strategist

Australian property is overpriced – and possibly set to fall much further than they already have – according to Michael Power, an Investec Asset Management strategist.

He told an investors' briefing in Sydney that while Australia won’t experience the same bust as overseas, the situation is “a real worry, medium term”.

He says prices could fall by as much as 15% in the next two years.

Although residential property prices in Australia have dropped over the last two years, they are still among the highest in the world, Power suggsts.

"When you see what [the property market in] Australia has done, you have to ask ... you may be exceptional, but how exceptional are you.”

"Your level of debt is one of the highest in the world as a percentage of incomes ... [it] will turn against you if there's a real problem."

“This is something that, at some point, catches up with you,” Power says.

“I know a number of investors around the world putting their top short as Australian property.”

He says recent declines in prices show the market is not at its bottom point despite the thoughts of local commentators.

“If you think things have stopped declining at 6% and you’ve just in the last eight weeks had a terms of trade shock, then what you are now experiencing could get a lot worse.”

“I mean, most big property bubbles don’t end at a 6% decline.”

While the price will fall, he says Australia will avoid “anything like a US-style, Irish-style, Spanish-style property bust”.

“I think over the next 18 months it could go down by double digits – 12 or even 15%."

“It’s probably started to put pressure on your banks, and it has actually started to show up in their non-performing loans.

“That’s the first negative that generally starts to show through. But I think the negatives are going to start to show up now in the wake of the change in terms of trade.

“That’s started taking place In Australia . . . I think that could start to increase pressure.”

The Australian Financial Review and The Australian both reported the briefing by Investec, an international specialist banking and asset management group.