Housing glut Australia
Housing volumes could plummet and prices tank, Citi
says
House price declines of up to 20 per cent and an 80
per cent crash in residential sales is the doomsday scenario investment bank
Citi says is a real possibility if the residential property market rolls over.
Key points:
Prices in residential developments could fall 20 per
cent if the property market cools
Historically sales have fallen 70 per cent from
peak-to-trough in downturns
The property market generally takes two years to
unravel
Citi's residential property team has looked at the
impact of a cooling property market on big developers such as Stockland and
Mirvac and the picture is far from pretty.
"When the market cools, it freezes — peak to
trough volumes can decline as high as up to -80 per cent," Citi's David
Lloyd said.
"One industry contact puts a 90 per cent
probability on a 10-to-20 per cent decline in house prices in the next 12 to 24
months," Mr Lloyd and his team wrote in a note to investors.
"House prices tend to closely follow housing
sales volumes, and housing sales volumes have already started falling.
"We believe a continuation of declining housing
sales could put downward pressure on house prices, negatively impacting both
Stockland and Mirvac."
Stockland sold 6,600 residential lots last year — up 8
per cent on 2015 — while Mirvac sold 3,300 in a record year.
On Citi's analysis, projects located in metropolitan
areas typically fare better than those in the regions, while large projects
have a lower downside.
While the average peak to trough change in sales is
about 70 per cent, it generally takes two years to unravel.
(Source: Australian Broadcasting Corporation)
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