Australia at possible risk of property bubble: UBS chairman
Australia could be at risk of a future property bubble collapse as central banks across the world distort prices by printing money and interest rates head down, according to the newly appointed chairman of Swiss bank UBS, Axel Weber.
The former president of Germany’s central bank says historically low interest rates in the US, Europe and Japan have pushed up exchange rates in?countries like Australia, the Australian Financial Review reports.
“When you have major interest rate differentials, that is one of the arguments that usually causes currency movements and financial movements and puts pressure on exchange rates,” Weber told a Sydney audience.
“In order to avoid those pressures on exchange rates in the major developed economies, interest rates in those regions are all heading south.”
Weber was speaking to a private gathering in central Sydney to celebrate 75 years of UBS in Australia and 150 years globally.
Weber says any attempt by the Reserve Bank of Australia to bring down the value of the Australian dollar by intervening in foreign exchange markets could stoke inflation.
Weber says artificially low interest rates could create a property bubble, which would then burst when central banks stop printing money.
“One of the reasons why many people move into real estate is that funding of housing projects and real estate purchases have become more affordable in a zero interest rate environment,” Weber says.
“The risk is as international rates are normalised at some point ... that would lead to much less affordability and sustainability for those houses bought under the assumption that low interest rates are there for a long period of time.”
Weber was not country-specific when speaking about the bubble scenario.
However, Weber says the US Federal Reserve’s latest program of quantitative easing could help strengthen property markets.
“I think the action the US central bank has taken with QE3 is more aligned with the underlying weakness in housing markets than Operation Twist or QE2 was,” he said.
“It will help house prices bottom out and that is something that has the potential for very targeted support for labour and for housing to strengthen.”