Is Australia vulnerable to higher risk than Canada on Real Estate?


Australia and Canada have been highlighted as two countries having many similarities when it comes to real estate scenario as both the countries have record housing debt and prices in their major cities are mounting high. Canada’s Vancouver and Toronto are particularly equated to Sydney and Melbourne with sparking high prices while the trend is reversing a bit lately in Australia.

Both the nations use a different approach for selling the property – like in Australia, the process is more transparent as bidding war takes the form of open auction; while in Canada, bids are kept secret. However, Australia is more debt prone than Canada as it constitutes about 122 per cent of Canada’s annual economic output which is more than two and a half times what it was at the start of 1990s. On the other hand, Canada’s household debt is 101 per cent of GDP. The correlation between prices of houses, high indebtedness and a future economic recession is extremely high. In Australia, interest rates are very low but still people are facing large interest bills leading to weak consumer spending power whereas Canada tends to have fixed-rate mortgages. It was reported that around 80 per cent of Australian mortgages were carrying variable interest rates, which is risky, against Canada’s fixed rate mortgages scenario.


House Price Growth (Source: ANZ Research)

During global financial risks, many large banks are typically seen to be failing and will be bailed out if a housing market crash leads to large losses, and thus the picture would be little different in two counties. It is also worth noting that Canada also has a national agency, CMHC (Canada Mortgage and Housing Corporation), which runs housing programs and provides policy advise whereas Australia has no such body. However, in Canada banks allow to undergo mortgage insurance on all low-deposit home loans. CMHC also has a dominant control over selling Canadian residential mortgage backed securities, which are a key source for funding home loans. So now both the countries are tackling their housing issues in different ways, but they also have used some common approaches like both have tightened the standards with improved lending requirements, both have also put special taxes on foreign buyers of residential property and increased stamp duties in Australia.

However, both the countries lack some sort of coordination in housing policy. But because of the key differences highlighted above, Australia becomes more vulnerable to a housing crash. It is worth noting that average capital city prices were up 8.3 per cent for the year when compared with prices in September 2016 despite the fall witnessed in the September quarter. Average home prices across all eight capitals fell 0.2 per cent in the September quarter. The deteriorating Sydney market pulled the overall market lower with the national housing price index falling lately.

Looking at the scenario, Australian economists believe that Canada’s roadmap on property should be closely watched. Put simply, Canada is ahead of Australia in terms of economic and policy cycles, and in terms of monetary tightening. As per a major Australian bank (ANZ), the Reserve Bank of Australia is a bit uncertain on consumer spending given house-price growth scenario with household debt touching record highs.


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