Look at all these similarities

I dont see man chinese people wanting to buy in Dublin, vs coogee or Bondi for eg ?

ta
rolf

 

The thing people need to understand about Ireland's real estate crash is primarily that their property boom was a bubble based on new development. It was a building boom more than a real estate boom - and the massive growth in their economy as a result made everyone feel very bullish and overconfident. (Similar things happened in parts of the US!).

The problem was that the development was unsustainable - they were building entire new towns/suburbs in areas where nobody wanted to live! It was largely speculative development.

I've heard it anecdotally from several people who lived in Ireland during that period and they were incredulous at some of the development - building a large number of properties in an area where there really wasn't much demand and a long way from jobs and such. They simply didn't understand why so much construction was occurring in some of these areas they were seeing it.

So when the funding crisis hit via the GFC (and it affected Irish banks far more than it affected Australian banks!), they got hit really hard because one of the main drivers of growth in their economy was the real estate construction industry.

Wikipedia has pretty good coverage of the Irish property bubble - Wikipedia

Here is one quote:

Eventually, demand for residential property fell in early 2007, resulting in price decreases of 0.6% in March 2007, and of 0.8% in April 2007. This led to an expectation of a drop in house prices on a quarterly basis for the first time since 1994. Houses in the commuter belt in Greater Dublin fell earlier, due to a combination of increased supply in the Dublin urban area, increasing interest rates, and continuing infrastructural deficiencies in rural communities. Prices in large urban areas were static, though demand dropped noticeably. However, a significant proportion of these new builds are unoccupied. Economic commentators give a figure of approximately 230,000 vacant properties. Of these, up to 115,000 or so may be holiday homes.​

Of course, once things started to slow down - a lot of the speculative development stopped and people who had been employed by the booming construction industry lost their jobs.

Another quote:

During the property bubble, a disproportionate number of people were employed in the construction industry. As that has contracted and other manufacturing moved offshore, unemployment by May 2009 was at 11.4%, and had reached 14.3% by September 2011. The Economic and Social Research Institute estimated it will eventually reach around 17%​

The difference in Australia is that our booming population has been the main driver behind demand for property and development hasn't been so speculative in most areas - there is real demand for properties.

Construction has seen a large proportion of infill development (increasing density in areas close to demand centres where people actually want to live) - certainly in Sydney anyway. Melbourne has seen a lot more outer suburban development, but again - they have significant population growth to support that.

The Chinese influence certainly had an impact on property prices - but that has largely been negated now by new rules on foreign ownership.

While easy access to finance has certainly been a key driver of property prices in Australia - our banks are still (despite their many failings) fundamentally strong - as is our economy. More importantly, housing construction has not become the dominant force driving our economic growth - we are much more diversified than that, so a downturn in construction activity should not see a significant impact on overall economic prosperity in the country.

So while I do think that Australian prices have over-shot somewhat, I don't think we were ever in a bubble, and what we are seeing now is a correction, rather than a crash.

Either way - I think the Australian economy is strong enough to cope with this property downturn - it won't have a significant flow on effect. I do think we'll see a slowing of overall economic growth though, as people spend less when they don't feel so bullish.

The only caveat here is if the government does something really silly to trigger much wider negativity towards real estate - we may see a selloff and prices driven substantially lower. I'm not sure removing negative gearing will be enough to cause that - I'm more thinking of significantly more idiotic policy.