Australia’s housing market could crash within the next six months unless banks act swiftly to prevent a sharp decline in foreign direct investment into the country’s property sector, a US defence think tank has warned.
In an article titled ‘Australia Risks Strategic Setback From a Significant Foreign Direct Investment Drop Due to Changes in Bank Policies’, the Washington-based International Strategic Studies Association (ISSA) warns that Australia “may be entering a significant phase of its economic-strategic development”.
It argues “changes in local banking policies” could see foreign direct investment in the property sector “decline markedly”.
“This will profoundly impact the Australian government’s ability to fund major programms in the defence and civil sectors,” it said.
The ISSA described moves by Australian banks from July this year to restrict or even withdraw funding to foreign property investors as “almost cartel-like policies”.
“The policies, now in place by all major Australian banks, were instituted in anticipation of an economic downturn internationally and domestically, but which, in fact, actually trigger or exacerbate such a downturn,” the article said.
The article, which is featured in the ISSA’s latest Global Information System newsletter, described as a 'strategic intelligence service for use only by governments', continued: "The Royal Australian Navy’s submarine acquisition program, budgeted at $50 billion, may be the first major defence casualty.
“However, the government itself seems unaware that the anticipatory caution on the part of Australian banks may accelerate a decline in the Australian economy.”
ISSA president, Gregory Copley AM, told news.com.au the “banks’ caution is precipitating the market collapse”.
“We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades,” he said.
“The urgency is, I believe, based on the fact that this is about how long it will take for the banks’ policies to start switching off a lot of existing and planned contracts for Australian properties.
“The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. They’ve learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow.
“In so doing, they precipitate the market collapse but are less exposed to it.”
The warning from the ISSA comes after Australia’s richest man, billionaire property developer Harry Triguboff, warned that a “very significant” number of foreign investors, particularly Chinese buyers, were now walking away from their off-plan units rather than complete on deals, and he urged that drastic action was needed to reverse this trend.
Triguboff fears that there is a real risk that Australian home values could plummet, particularly in the new build housing sector, unless more is done to secure overseas investment and persuade buyers investing off-plan not to walk away from their deposits.