In a number of blogs, we have argued that the Australian property market is not going to collapse. The IMF has come out with the same prognosis. We must remember that the Australian economy has a number of advantages:
1. Currency flexibility - weaker commodity prices or volumes drive exchange rates, and with commodities priced in USD, currency movements provide the perfect hedge.
2. Immigration - The Australian government has the capacity to change the number of immigrants to stimulate domestic demand
3. Future fund - The Australian government has a $200 billion future fund, which could be used to build a high speed, train service around the SE-East coasts of Australia.
4. Business investment - Irrespective of any weakness in China, there will still be a desire to increase commodity supply capacity from Australia, whether coal, iron ore, coal seam gas, etc.
5. Gold mining - Australia can expect a gold mining boom. Australian companies are one of the biggest investors in mining around the world.
6. Government debt - The Australian govt has a significant capacity to sustain spending over 5-10 years. It is probable that this will involve capacity-building, e.g. ports and railways to facilitate future mining, mostly in Qld, NSW, Victoria, NT. I think public sector debt is around 50% of GDP if memory serves me. It could go to 120% without much complaint given the positive outlook.
7. Zoning laws - The government will persist in controlling the release of land, which will assist with sustaining high land prices.
8. Global political revolution - One might also expect a global revolution in terms of the way government is administered.
These parameters will ensure that property holders sustain their property investment value, and that Australia even needs more home construction in coming years. There is no over-supply.