Australian property vulnerable to global shocks

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A major downturn in China or a second financial crisis during the current property market slowdown could see Australian property values fall by 40%.

SQM research managing director Louis Christopher has warned that there is an 'outside probability' that a downturn in China or a sudden rationing of housing credit from a second financial crisis could turn the likely 5-10% decline into 'something much greater'.

"Any sustained rationing of credit (through say fierce reduction in maximum LVRs) or major ongoing reductions in resources incomes would smash our national housing market and make it difficult for an effective stimulus response from the powers that be," said Christopher in his weekly roundup email. "However... We believe the most likely end game for this downturn is federal government and/or central bank intervention as happened in 2008."

Christopher stressed that massive price falls are unlikely without an unexpected external shock.

"We have near full employment, we have a central bank that has plenty of room to cut interest rates and we have both sides of the government who have both publicly stated that they don't want a housing crash and have the means to stop one," he said. "On top of this we have nominal GDP running at 9% and in a number of cities we have a very tight rental market as our vacancy rates illustrate."

Even so, he warned vendors to prepare for some pain, suggesting that Brisbane, Perth and Darwin could potentially see negative growth of more than 10%.

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