The US economist believes that the Chinese real estate collapse this fiscal could be the trigger for the downturn in Australia
The “overvalued” real estate market in Australia is heading for a downturn and the property bubble burst in China this financial year will be the primary trigger for it, Harry Dent has predicted.
“Real estate is the epicenter of this whole bubble because people borrow to buy real estate, it’s the epicenter of Australia,” the US economist said in a podcast interview with Digital Finance Analytics.
Though Australia doesn’t have a debt problem outside of the banks lending too much against high value in real estate, Dent believes that the real estate bubble burst, especially in China, is inevitable and it’s going to have a ripple effect on Australia much more than the US—given the fact that this country’s property market is overexposed to Chinese economy.
“This is very significant, I think the real estate bubbles are the most pernicious here in Australia. The Chinese may buy more real estate in the US or other countries than Australia but relative to the size of the market, they buy the most in Australia because it’s the most attractive place close to them English speaking.
“When the Chinese real estate market implodes and they stop buying and they’ve already pulled back on foreign purchases that to me the Australian market cannot survive that that’s what triggers,” he told host Martin North, also an economist.
Dent’s sentiments were echoed by North, who tracks Australian economy very closely. “We are already seeing real estate prices now starting to teeter. There’s no inward migration because of the border lockdowns, demand from first-time buyers is still there because they’re being cajoled to still buy but property investors are now leaping for the exits. So we’re seeing a massive amount of property investors losing their shirts trying to get out.”
“People putting too much money in real estate instead of businesses that can produce goods to sell to Asia… now absolutely the whole economy here is completely warped and it’s been warped because of policy”
Calling Australia an incredibly attractive place to live with great weather, great people, great demographic trends, Dent says that Melbourne, Sydney, Brisbane and Perth are all great cities in coastal areas with the same dynamics.
“So Australia becomes the most overvalued developed country in the world and China has quickly become the most overvalued in the emerging world and the truth is the east coast of China are more like the Asian tigers.
“Not only have the Asian tigers seen one real estate bubble starting with Japan and coming up the next, China’s demographics have turned down just like Japan’s did in the 90s and so china is not going to be able to sustain the very highest real estate valuation of the world,” he said.
Dent says the property bubble in Australia is not new and people been living off this property bubble for as long, with investors putting in more money in real estate than in any other sector.
“People are putting too much money in flipping and investing in real estate which does not create productive investment or competitive advantage in the world, it’s just making money off of nothing that’s what quantitative easing does, that’s what speculation does so that’s Australia’s Achilles Heel.
“People putting too much money in real estate instead of businesses that can produce goods to sell to Asia… now absolutely the whole economy here is completely warped and it’s been warped because of policy.
“So I blame the Reserve Bank and I blame the government and for basically taking the easy route rather than the hard route… the lack of productive investment in things that actually create real value rather than just spurious value and just one indicator, the mortgage stress data,” he said.