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Australian housing market - bubbles that can last

Comments on news report by Sally Rose "'We ain't seen nothing yet': Chinese foreign investment in Australian property tipped to surge", 21/07/2015

Rose reported that, "according to Colonial First State Global Asset Management chief economist Stephen Halmarick", "the liberalisation of China's capital markets will inflate asset prices acrosss the globe", with a surge to an unprecedented degree we have never seen.

By liveralisation of China's capital market, it is meant and I quote a paragraph from Rose's news report:

"But what will really matter for the world is how China opens up to allow its people to send money offshore. Australians might think they've seen a lot of Chinese investment in the Sydney and Melbourne property market, but we ain't seen nothing yet," Mr Halmarick said at a panel hosted by the Australian Institute of Superannuation Trustees in Sydney.

I have the view and have commented before that while there are bubbles in the Australian housing market, but those bubbles won't burst for a prolonged and extended period and could even perpetuate, simply because of the unique characteristics of the Australian housing market. Those characteristics include the following:

Australia is politically very stable with few sovereign risks

Australia is a small and open market - small population and allowing foreign investors to buy into its housing market

Australia has very large land, so its population density is very low

Australia is geographically located close to Asia, where there there are two countries, China and India, whose population are over a billion each and some other countries with population over 100 million. Population density in most Asian countries is very high

Large Asian countries, such as China and India, are emerging and fast growing economies with rapidly rising income in general and many people have become, are or will be becoming rich including multi millionaires

The property markets in some Asian countries, such China, are very expensive and many of those people are looking at overseas to buy properties for them to enjoy

Further, it is possible some in their home countries may feel insecure of their own assets and
want to find more secure countries to invest or park their money for one reason or another

All these factors suggest there are strong external factors which increase the demand for Australian housing properties.

The relatively small Australian housing market, combined with those strong and large external demand, mean a domestic housing market bubble sustained by external factors that will last for a very long time to come.

As a result, the demand for housing properties in Australia is not just its domestic demand and has a significant element of external demand that makes the demand much higher than the domestic demand alone. The housing market cannot be analysed in the conventional way that only focuses on domestic factors.

Put it another way, the Australian housing bubbles have very strong and thick layers supported, strengthened and reinforced by strong and large external factors - bubbles can last.

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