In a shock move this week, The International Monetary Fund (IMF) has warned Australia’s main lending banks to make sure they have stashed away billions of dollars in reserve to cover a potential residential property implosion.
Worried that the Australian housing market is severely overheated, and that prices in the big cities are artificially high following an influx of wealthy overseas property investors from China, the IMF is warning of a major market collapse.
The news comes as new research shows that Melbourne has become one of the world’s most unaffordable cities in which to purchase a house – ahead of London, New York and Los Angeles.
The IMF is seriously concerned about a “massive exposure to the residential mortgage market” in the country top four biggest banks.
The Commonwealth Bank, Westpac, NAB and ANZ hold about 80% of the nation’s residential mortgage market, leaving them vulnerable in the face of a housing crisis.
“Combining residential mortgage shocks with corporate losses expected at the peak of the global financial crisis would put more pressure on Australian banks’ capital,” the IMF report says. “It would be useful to consider the merits of higher capital requirements for systemically important domestic banks.”
Meanwhile, economists at ANZ have warned the Gillard Government’s Budget cuts will slow economic growth by up to half a percentage point a year for the next four years. Deep cuts by the federal and state governments would produce “the weakest period of government investment since 1960,” economists said.
The news comes after US real estate analyst Jordan Wirsz warned that Australia was facing a 60% house price “bloodbath”, as reported in OPP.