NAB's Alan Oster debunks ISSA’s prediction of an imminent property price collapse as “garbage”

The NAB chief economist Alan Oster has described the dramatic prediction of an imminent collapse in the Australian property market as “garbage."

Australia has around “six weeks” to prevent a housing market collapse caused by the banks’ crackdown on foreign investor lending, a US 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 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”. 

The article said 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, West Australian-born Gregory Copley, 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 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 piece quotes a “leading Australian property source” warning that by cutting off the foreign buyer sector completely, “it is much more likely to be a self-fulfilling prophesy by depressing demand, creating oversupply and putting downward pressure on prices, thereby creating paper losses at the settlement date which would tempt buyers to walk away”.

“It will likely also have a broader impact of depressing housing prices across the whole economy. It is a kneejerk response to fraud concerns,” the source was quoted as saying.

“To my understanding the fraudulent activity has been linked mainly to one significant group, which has historically managed about 3000 sales into Australia each year.

“And notwithstanding the doctoring of supporting documentation, the actual settlement rates had remained high.

"That one property group needs to be taken to task, not the whole industry.”

NAB chief economist Alan Oster described the ISSA’s prediction of an imminent collapse as “garbage.”