Financial experts are warning of a deep and sustained property crash triggered by coronavirus – but caused by demographic changes, overbuilding and soaring debt.
US author and financial commentator Harry Dent warned Australia of a looming the financial crash of a lifetime which would bring mass unemployment and widespread bankruptcies.
The demographer said coronavirus is only the trigger. Too much central bank money printing made a new Great Depression inevitable and an economic meltdown had been looming for years, he said.
Mr Dent has predicted this downturn would be deflationary despite the money printing.
Australia’s banks are overly exposed to domestic real estate and would be in trouble if house prices went down by even 20 per cent, he said in a YouTube interview with respected economist Martin North.
‘And I think it’s going to be 30 to 50 (percent), in that range,’ he said.
Mr Dent said he thought Sydney and Melbourne would drop by up to 50 percent as they had ‘the worst bubbles’.
Brisbane would be next worst at a drop of around 40 per cent, followed by Adelaide at 30 per cent, he said.
‘That is going to be a shock. That’ll probably be the biggest shock Australia’s had,’ he said.
Pictured: a one-bedroom unit sold in Cronulla on March 28. Volumes are down but asking prices have not moved down much yet, said property commentator Michael Yardney.
NAB predicted capital city property prices would fall by 10 to 15 per cent during the next 12 to 18 months, as unemployment hit levels unseen since the 1930s Great Depression
Mr Dent said central bank money printing had created a debt bubble globally putting the entire world on the brink of a 1930s style meltdown.
‘They have literally printed trillions and trillions of dollars, and along with the Australian Government’s multi-billion dollar stimulus package, have created a property and mortgage bubble that combined with increased unemployment will be the catalyst for massive bankruptcies,’ he told news.com.au.
‘This is a two-year meltdown between late 2020 and late 2022 and nothing can stop it.’
How COVID-19 has affected house prices
Melbourne: DOWN 0.4 per cent to $818,806
Sydney: UP 0.3 per cent to $1,026,418
Brisbane: UP 0.3 per cent to $558,372
Adelaide: UP 0.4 per cent to $476,249
Perth: UP 0.3 per cent to $465,521
Hobart: DOWN 0.2 per cent to $512,688
Darwin: UP 1.1 per cent to $473,984
Canberra: UP 0.1 per cent to $702,861
Source: CoreLogic Home Value Index for April based on median house price changes
Mr Dent believes the ageing baby boomer demographic will weigh on the housing market as they sell their family homes and downsize or rent.
However, he said the drop in property prices could actually benefit Australia.
‘It’s going to be good for your country and extra good for your children and grandchildren that real estate comes down to maybe just four or five times income instead of eight, ten, eleven, twelve – when really three is more normal,’ he said.
Mr North, principal of Digital Finance Analytics, said Australia was exposed to a downturn with a glut of real estate and more being built.
‘The worry is the state and federal governments are trying to still turn the construction and real estate knobs up to 11 to try and recover from the current dip,’ he said in a YouTube interview with Mr Dent.
Mr North said there was an oversupply of vacant properties.
‘According to the latest surveys from the ABS we have a million vacant properties across Australia … and people have just forgotten about that,’ he said.
‘We’ve got 250,000 new buildings going on at the moment, new units – so there’s still more going on even now, so this whole equation is completely nutty.’
Investment gurus Harry Dent (left) and Robert Kiyosaki (right) are giving a free webinar on May 24 about how to best ride out the coroanvirus economic shock in Australia
Mr North said from a strategic point of view, a real estate correction could actually benefit Australia.
‘Currently, affordability is just stupid, and it’s killing the rest of the economy,’ he said.
‘It’s sucking the air out of the rest of the economy, so getting a more balanced economic mix going ahead will actually support the economy in the future.
‘It’s a fall we have to have but it’s going to hurt people on the way down.’
Both Mr Dent and Mr North are participating in a free online forum on how to navigate the economic fallout of the coronavirus in Australia on May 24.
Rich Dad, Poor Dad author Robert Kiyosaki will also participate in the webinar.
The Hawaiian real estate guru has inspired generations of Australian property investors keen to build their wealth, such as Eddie Dilleen, 28, of Mount Druitt, Sydney.
Mr Dilleen said he started reading investment magazines and books like Rich Dad, Poor Dad as a young teenager to learn about the property market and was inspired to build a mini-empire.
He started saving for his first home at the age of 16 by working at McDonald’s and KFC and now owns 21 homes worth between $5.5 and $6million spread across New South Wales, Queensland and South Australia.
While the investment gurus are warning that it is young, debt-laden investors like Mr Dilleen who may be hurt by what they see as an inevitable property bust, he said he is still buying.
‘My prediction for this year is that we will see less people buying homes to live in them, called owner occupied, due to COVID-19, but for property investors who are after investment properties there will be bargain prices,’ he told Daily Mail Australia in April.
Mr Dent warned that deleveraging hurts people who own financial assets, and has warned that the coronavirus pandemic will be deflationary as people who have lost their jobs and businesses sell down assets to pay off debt.
In a deflationary environment, interest rates are low – but the purchasing power of the debt you have to pay back remains as large or even larger than the day you borrowed it.
Not all investors share this view.
Author and property investment adviser Michael Yardney has been more upbeat saying while auction clearance figures have been disrupted by the coronavirus, properties are still being sold, and that asking prices have not dropped significantly yet.
US finance guru Harry Dent is predicting the greatest economic crash of a lifetime due to bubbles fueled by central bank money printing coupled with ageing baby boomers selling their homes to downsize or rent
‘Currently asking prices have had little movement, suggesting vendor confidence remains,’ he wrote in a property update on May 8.
Mr Yardney has pointed out Mr Dent has been predicting a worse Great Depression than 1929 for years, including in 2018.
‘Interestingly, Dent made similar prediction in 2011, 2012, and 2014 as did The Economist and Demographia,’ Mr Yardney wrote during Mr Dent’s 2018 visit.
Mr Yardney said at the time that Australia’s banks had tightened their lending criteria, and that in Australia 70 per cent of dwellings are owned by owner occupiers of whom about half do not have a mortgage.
‘I explained the Australia psyche: we don’t sell up our homes when things get tough — we’d rather eat dog food than sell up the ”castle”,’ he said.
Recent reports have also highlighted a surge in bargain-hunting Chinese buyers looking for distressed property, providing a floor for the market.
Real estate industry adviser Robert Klaric said he expected wealthy mainland Chinese to look to Australia to secure their wealth and their health.
Overseas buyers have been looking to Australia for distressed sales to snap up bargains
‘A lot of the mainland Chinese are seeing this as an opportunity to exploit a great deal. That’s what they’re going to see in the property market in the next six months,’ he told A Current Affair on Wednesday.
National Australia Bank expected apartment prices to fall at a faster pace than houses by 2021 as landlords struggled to find tenants, with border closures stopping international students from coming to Australia.
NAB forecast a 12.8 per cent plunge in Sydney’s median unit price and a 14 per cent plummet in Melbourne by next year.
SQM Research data showed a record surge in vacancies of inner-city apartments.
In Sydney’s city centre, 13.8 per cent of units are empty, with 13 per cent vacant in central Melbourne.
SQM Research chief executive Louis Christopher said the loss of hospitality jobs, from the COVID-19 shutdowns, and international students was devastating for landlords.
‘The blow out in rental vacancy rates for the major CBDs suggests a mass exodus of tenants occurred over the course of March and April,’ he said.
‘This might be attributed to the significant loss in employment in our CBDs plus the drop off in international students.’
WHERE TO GO FOR HELP
* Tax relief: if you have a debt to the tax office you can’t pay call the Australian Tax Office emergency support infoline on 1800 806 218
* Unexpected bills for essentials: don’t go to high-interest payday lenders. No-interest and low-interest loans of up to $3000 available from Good Shepherd Microfinance.
* Utility providers will negotiate a payment plan to keep the power, water and gas on – ring them
* Banks will make hardship provisions available if you are having trouble paying your mortgage – call your lender
* Set up a myGov account at my.gov.au so you can access welfare help online
* Go to Services Australia and use the payment and service finder to work out what help you can get
* Access up to $10,000 of superannuation early this financial year, see here
* The first $750 coronavirus supplement will go to those registered as on income support and eligible between 12 March and 13 April. The second $750 payment will go to those eligible and registered on 10 July. Check here
* The new coronavirus supplement of $550 per fortnight is being added to several welfare payments – check if you are eligible here
* A list of Services Australia phone numbers for different information lines from crisis payments to low income health care cards is here
* Visit the Services Australia and register for a Jobseeker Payment or call to register on 132 850
* Centrelink advance payments are available in some circumstances
* You can get rent assistance from Services Australia if you are on a JobSeeker payment.
* National Debt Hotline for free advice and support for those in financial difficulty 1800 007 007
* Ask your employer to register on the ATO website ato.gov.au to keep your job going during the coronavirus shutdown so you can get $1500/fortnight