Property recovery to be led by investors: Saul Eslake

Saul Eslake, chief economist at Bank of America Merrill Lynch says any potential property recovery in Australia will be led by investors buying established homes, pushing prices up.

He says first-home buyers face too many hurdles to enter the market meaning the recovery will be led investors – who typically buy established homes rather than newly built properties.

"An investor-driven recovery is much more likely to put upward pressure on prices and is less likely to induce new dwelling supply, which is the opposite of what the Reserve Bank wants, and what the country needs," Saul Eslake, chief economist of Bank of America Merrill Lynch, told the Sydney Morning Herald.

"If [this] is right then I think that would be a very regrettable development from a social point of view."

It echoes comments by columnist Robert Gottliebsen, who predicts there will be a “mother of all dwelling booms” led by property investors.

"Australians are going to rush for bricks and mortar," he wrote on Business Spectator, saying the boom will come from three reasons.

"First is a dramatic push to lift the demand for dwellings by banks offering cut mortgage rates thanks to Reserve Bank Governor Glenn Stevens.

"But second, and just as importantly, there is reluctance by banks to fund new supply.

"In any commodity if you inflate demand and squeeze supply, prices go through the roof.

"Thirdly taxpayers will subsidise the boom via a massive increase in the use of negative gearing via both personal and superannuation tax breaks.

"Longer term, that will damage the economy and the Reserve Bank will have to take responsibility for pulling the price boom trigger.”