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Here’s why property expert says Sydney house prices could drop 50%

The New Investors video series brought to you by Yahoo Finance reveals the secrets of the most successful entrepreneurs and business people in Australia today. This is the third episode of the season.

Sydney property prices have fallen nearly 11 per cent in the last 12 months, but they could haemorrhage up to 50 per cent before stabilising, a property expert has warned.

Speaking to Yahoo Finance Editor-in-Chief, Sarah O’Carroll on the New Investors video series the founder of Flatmates.com.au, Andrew Maloney said property prices in Sydney could fall 50 per cent.

He said Australians tend to believe that property is the magic asset; it will always go up. But that isn’t always the case.

“There is a thing in investment called reversion to mean that generally things go back to the average and if things pull away from the average, they’ll come back to the average,” Maloney explained.

Image: Getty

“So if you look at property prices globally, Australia and Hong Kong are way out there. So it’s quite easy to see property prices in Australia coming down 50 per cent because that would put it on a global average.”

He said the massive increase in Sydney property prices have come down to supply and demand.

“Why are property prices high? Immigration increases the demand. [Sydney is a ] supplier of labor. Everyone wants to live in Sydney.”

Then there’s the fact that Sydney has a national park to the north, another to the south, another to the west and an ocean to the east.

“It’s a big square, Sydney. It just can’t get much bigger so it’s got to go up.”

These factors have led to a misplaced – in Maloney’s opinion – belief that property prices will always go up in Sydney.

“There’s nothing magic about property as an asset. It is an asset like shares, like commodities. There’s nothing magic about property always going up. The frustrating thing is, in Australia, it has gone up for the last 90 years in a row so it feels like it’s special.”

Maloney’s words follow a similar warning from LF Economics’ founder, Lindsay David.

According to analysis released in February, Sydney and Melbourne property prices will likely fall by between 15 and 20 per cent, but possibly up to 50 per cent.

“Without a government or central bank ‘bazooka stimulus’ that hits the bullseye from an ever-increasing distance, the Sydney and Melbourne property markets are entering a property bloodbath,” he warned.

“The declines in Sydney and Melbourne house prices since the peak in 2017 have diminished some of the unrealised capital gains, leaving speculative property buyers, particularly those who recently purchased, at or close to negative equity,” he said.

“Without enough unrealised equity to make a large so-called cash deposit, this cohort of buyers will increasingly be shunted to the sidelines with no ability to purchase.”

The New Investors video series brought to you by Yahoo Finance reveals the secrets of the most successful entrepreneurs and business people in Australia today. This is the third episode of the season.