Posted September 10, 2018 08:29:49 Australian investors will be forced to spend more to buy property when the global property market begins to collapse, with the Bank of England warning that banks will be able to sell assets if the market falls too far.
The central bank said in a report on Thursday that banks are prepared to sell bonds, stocks and cash to fund a sell-off of some of their properties, but said that such a move is likely to be limited as the global economy continues to recover.
“While it may not be a dramatic sell-up, there is a risk that the global financial system will be exposed in the event of a collapse in global demand and/or a global housing price decline,” the central bank warned.
The Bank of Japan has indicated that it will buy the debt of major banks and lend them money, but this has so far been resisted by the US Federal Reserve, which wants to hold on to its $85 trillion (US) gold reserves.
This is the first time the central banks have weighed in on the global housing market in two decades.
The UK government has also raised the prospect of buying back government debt, but the Treasury has ruled out selling its £2.2 trillion ($3.4 trillion) gold hoard.
The global housing bubble is in full swing and has hit record highs with prices continuing to rise, and with prices already surpassing the US house price bubble.
In March the average price for a property in the UK was £1.5 million ($2.4 million).
In November, the average selling price was £2 million ($3 million).
Prices have now surpassed US house prices for the first two months of 2017.
The collapse of the housing bubble The global economic downturn is having an impact on the value of property, and the UK is facing the potential for a similar impact if house prices fall too far, according to a report from the central banking agency.
“In the event that the housing market declines by more than 20 per cent in the second half of 2018, a significant decline in the value and liquidity of property could have an adverse impact on economic growth and housing supply,” the Bank said.
The report also warned that the UK could see an increase in demand for housing in the years ahead as people get used to living in bigger homes.
“The magnitude of the fall in prices would likely be limited, but could nevertheless have an impact,” it said.
“If the price decline continues at the current rate, a further fall of 20 per% or more would be expected in the medium term.”
The bank noted that there are already a number of measures that will be put in place in the run-up to the start of the Australian property market to try and prevent the housing collapse from happening.
These include building taller and wider homes, reducing the number of units in a home, building new dwellings, increasing the number and size of social housing accommodation, introducing a housing affordability strategy, and introducing a new property tax.
“We expect these measures will be effective in helping reduce the damage from the impact of a global downturn in the property market, but will not be sufficient to mitigate the risks to economic growth that a collapse of this magnitude could entail,” the report said.