Is there risk of a commercial property bubble?

Date: 20 February 2018
Is there risk of a commercial property bubble?
Experts and economists are worried about the recent increase in prices of offices, warehouses, shopping centres and new developments.
The Reserve Bank of Australia has also issued a warning about commercial property, reminding us of the period when Australia went through a commercial real estate bust in the 1990s, nearly sending banks broke. The economy was buoyant and commercial property price growth strong in the late 1980s. Due to a ready supply of credit and lowered lending standards, there was a boom, but it almost ended in disaster with office prices dropping by half and banks needing to be rescued.
Commercial real estate does not have a similar structure as residential mortgages because the lenders have much less incentive to pay back the loan. The good news is that Australia's big banks are almost certainly safe enough to survive a commercial property crisis and Asian banks have stepped up to the plate, increasing the amount they are lending to commercial property projects. The financial risk is offshore and any property could be purchased at a low price by an Australian business, should there be a distressed sale. For now, commercial property looks sound enough in most parts of Australia. Only Perth is experiencing a spike in office real estate vacancies. For now, low vacancy rates in Sydney and Melbourne are a good sign.
Back to articles Filed under: Media / National News Tags: bank, bubble, commercial, perth, property, reserve
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