Capital city dwelling values rose in the month of March and in the March quarter following a flat February result, according to the RP Data-Rismark home value index.

Home values across capital cities rose by 2.3 per cent in the month and gained 3.5 per cent in the first quarter of the year.

Every capital city except Perth posted a lift in dwelling values in the quarter, the survey found.

RP Data research director Tim Lawless said half of Australia's capital cities are posting record high dwelling values, with Sydney recording the most substantial increase beyond the previous high.

"Sydney dwelling values are now 15.8 per cent higher than their previous peak, substantially more than Melbourne where dwelling values are 4.7 per cent higher than their previous peak," Mr Lawless said.

"Perth and Canberra values have risen to be 2.9 per cent and 1.2 per cent higher than their previous high point, respectively."

Over the month, Darwin values lifted by 3.3 per cent , Brisbane by 2.9 per cent, Sydney by 2.8 per cent and Melbourne by 2.3 per cent, with all capital cities gaining.

Meanwhile, over the quarter, Melbourne values rose by 5.4 per cent, Sydney by 4.4 per cent and Hobart by 4.7 per cent, while Perth values fell by 0.6 per cent.

Dwelling values have risen by a cumulative 15.8 per cent since the growth cycle started in June 2012, with most of the growth occurring since June last year, Mr Lawless said.

"Over the long term, I don't believe such a strong pace of growth can be sustained -- we expect housing market conditions to cool down as the year progresses.

"If the pace of capital gains doesn't slow, we may see higher interest rates realised much earlier than previously expected."

March and September have a history of being comparatively strong seasonal months for changes in home values, RP Data said.

Li Ka-shing, the richest man in Asia and one of the shrewdest property investors in the world, has been selling down real estate assets in China -- including Oriental Financial Centre, which is at the heart of Shanghai’s glitzy financial district. In 2013, he offloaded 20 billion yuan's worth of property in China.

Li, who is known as the “superman” in Hong Kong, is shifting his investment focus from mainland China and Hong Kong to Europe, and especially Britain. Some investors and property developers in China see Li’s move as a sign of his weakened confidence in the world’s second largest economy.

Wang Shi, the chairman of China’s largest property developer, Vanke, said: "The shrewd Mr Li is selling his assets in Beijing and Shanghai, and this is a sign that we must be careful".

Wang’s comment is part of a growing concern among investors about the health of the real estate sector in China, which is one of the most important growth engines and revenue sources for the government.

Nomura’s chief China economist Zhang Zhiwei believes a potential downturn in the real estate sector poses the greatest risk to the Chinese economy in 2014 and 2015. He argues that real estate sector risk is more grave than either shadow banking or the local government debt problem.

The real estate sector makes up 16 per cent of GDP, 33 per cent of fixed asset investment, 20 per cent of outstanding loans, 26 per cent of new loans and 39 per cent of government revenues in 2013. "If it slows sharply, we see obvious replacement to support growth," says Zhang in his research report.

But people have been predicting the collapse of the Chinese property sector for years. Andy Xie, a noted former Morgan Stanley chief Asia economist, has been saying that for as long as people can remember, and it has become somewhat of a running joke among economists and investors.

At a time when people are getting increasingly jittery over other looming signs of crisis in the country’s shadow banking sector and ever-expanding local government debt, the question must be asked: Is 2014 going to be different?

This year has already started off on a bad note. House prices in 70 large and medium cities have only increased 0.27 per cent in February. That’s an incredibly slow pace compared to the same period last year. Even more worrying is the fact that developers in second, third and fourth tier cities have started reducing prices to sell apartments.

This is a far cry from previous years, when Beijing had to step in to impose draconian policies to restrict people from buying property in a bid to put a lid on skyrocketing house prices. There are ominous signs that bubbles are quickly developing in China’s third- and fourth-tier cities.

Zhang from Nomura argues that foreign and Chinese investors are often misled by soaring prices in major cities like Beijing, Shanghai, Guangzhou and Shenzhen. In fact, they only account for 5 per cent of housing under construction.

Twenty-four second-tier cities -- mostly provincial capitals -- account for 28 per cent of housing under construction. On the other hand, the mostly overlooked third- and fourth-tier cities account or 67 per cent of housing under construction, 69 per cent of sales, and 57 per cent of housing investment.

Zhang argues that the fast-emerging risk comes from the overlooked third- and fourth-tier cities. The rapid expansion in the sector has contributed to a large over-supply of housing stocks in many smaller cities dotted around the country.

Between 2000 and 2013, China’s residential property supply increased 423 per cent. On a per head basis, an average Chinese person enjoyed about 23.4 square metres back in 2009, a figure comparable to Russia, but far below other developed countries.

However, as a result of rapid expansion, the average residential floor space increased 31 per cent to 30.6 square metres in 2013, a level that is comparable to developed countries like Japan and Britain.

Let's use Guiyang as an example. Guiyang is a small mountainous city in southern China with a population of four million people. The five largest real estate projects in the city are building 74.2 million square metres of new apartments, enough to house two million people.

The head of forecasting at the state information centre, Zhu Baoliang, says the situation in Guiyang was “madness”.

“The planned new city is several times larger than the old town,” he told the Southern Weekend newspaper.

Some of China’s largest and well-financed property developers are shifting their focus away from third- and fourth-tier cities and are moving back to major metropolises like Beijing and Shanghai, despite soaring land prices.

How bad are the problems in these smaller cities that account for a majority of new housing construction in China? Can we expect a major correction in the sector that could lead to a sharp downturn in the Chinese economy?

China Spectator will look at these problems in a series of articles over the following weeks.

Private equity groups have been previously tipped to pick up UGL’s real estate arm, should the utilities company choose a trade sale over a demerger deal.

But it is believed that TPG is offering the highest price among those competing.

Others named as potential contenders for the DTZ business have included Carlyle Group, Pacific Equity Partners and Warburg Pincus.

No formal sales process has been under way, but Goldman Sachs has been working closely with the company.

UGL has declined to comment. Some had previously wondered whether UGL would proceed with the demerger plans if it were unable to secure the right price for a trade sale, given that earnings from the real estate arm were strengthening.

In the last financial year, DTZ delivered its 11th consecutive year of earnings growth, representing 46 per cent of the company’s overall revenue.

Building approvals fell sharply in February, coming in well below expectations, as weakened demand for apartments weighed on the data.

The Australian Bureau of Statistics data showed the number of buildings approved fell a seasonally adjusted 5 per cent to 16,669 in the month.

That compares to an initially reported 17,514 approvals in January, seasonally adjusted.

Bloomberg economists had expected the figures to show a 2 per cent slide in approvals during the month.

Building approvals are now 23.2 per cent higher, seasonally adjusted, than in the same month last year.

In trend terms, building approvals actually gained 0.7 per cent in February, highlighting the volatile nature of the read.

Approvals for private sector houses fell 2.1 per cent in the month, and the 'other dwellings' category, which includes apartment blocks and townhouses, posted a fall of 8.7 per cent.

Falls of this nature are not uncommon, with a similar sized decline observed in November last year.

The decline in February only partially offsets a large 6.9 per cent rise in January.

Still signs home building sector strengthening: economists

JP Morgan economist Tom Kennedy says that although construction of new homes fell five per cent, the breakdown of the figures show the residential construction sector is strengthening.

"If you look at the data over the past few months, there is a clear uptrend in single family dwellings," he said.

"Multi-unit buildings are typically bought by investors, whereas single dwellings are bought by families, so it's a more accurate indication of what is going on at the household level.

"The data does suggest there are signs of life out there in the residential construction sector."

CommSec chief economist Craig James said the housing sector was still much stronger than a year ago.

"We are seeing building approvals, in trend terms, at record highs. We've got activity up 30 per cent compared to a year ago," he said.

"This is very good news for the economy. It shows that housing is taking over the driving seat from the mining sector, and it's good news for builders and developers."

However, Mr James said, the figures will continue to be volatile from month to month.

"If you have a significant rise one month, it's going to have a correction the next month," he said.

Mr James said the recent run of good economic data shows that the chances of another interest rate cut from the Reserve Bank of Australia are "pretty much dead and buried".

Frank Lowy’s Westfield fronted disgruntled investors yesterday to talk up the prospects of its Australasian spin-off Scentre, but the company barred investors and analysts from asking any ­questions on the restructure of its $70 billion empire.

Investors and analysts were yesterday bussed to the meeting at Westfield Miranda in southern Sydney. There incoming Scentre chief Peter Allen espoused the merits of Westfield’s Australian business, telling investors that sales across Westfield’s 47 centres in Australia and New Zealand had improved over the past 10 months.

“Some stores are producing double-digit sales growth,” Mr Allen said.

However, the ban on questions about the restructure appeared to backfire on the company trying to sell the deal to investors.

Under the proposal, the group’s Australasian business will be merged into Westfield Retail Trust to form Scentre, which will buy the Australasian management platform from Westfield Group for an estimated $1.8bn.

Westfield Corporation, in which the Lowy family will hold an 8 per cent stake, will retain its higher-growth US, British and European businesses.

The transaction needs 75 per cent approval from WRT investors to pass. A document outlining the proposal will be released late this month ahead of the vote in May.

A recent poll by broker CLSA showed 58 per cent of WRT investors surveyed planned to vote against the proposal, leading to speculation that Westfield might sweeten the proposal.

“It was a bit of a strange exercise. It was the right forum to go into the restructure,” said a fund manager who declined to be named.

The fund manager said the chief concern was the level of gearing of Scentre, which would sit at 38.5 per cent against the gearing of WRT, which currently stands at 21.5 per cent.

“The pricing is not that concerning for us, it’s the higher gearing. We also don’t like the capital distribution model. We would prefer a normal buyback.”

Legg Mason Australia fund manager Ashton Reid raised concerns about the price of the management platform.

“I think they were trying to showcase the Australian business and all the market wants to talk about is the price,” Mr Reid said.

“The overall strategic idea is good. But we do struggle with the price.” He said the benefit to WRT from the increase in gearing was “questionable”.

Another fund manager said the meeting demonstrated the marketing machine of the greater Westfield Group. “They were really just selling the merits of the active business platform in an ­attempt to justify the price,” the fund manager said.

Mr Allen also pointed to the high development earnings that Westfield Group received from its developments compared with WRT under the current structure. Mr Allen said the Australian arm of Westfield had $1.5bn-$2bn in development opportunities on the table.

He also batted away questions on the group’s sales growth prospects over the next three years.

Over the past few years, Westfield’s local sales growth has been lacklustre, with turnover growing 2 per cent in the December quarter, while both Westfield Retail Trust and Westfield Group’s profits fell due to the weak performance of its Australian arm.

WRT’s shares closed up 3c yesterday at $3.05. Westfield closed down 9c at $10.18.

Barclay's chief economist Kieran Davies says housing valuations are “flashing red” as Australian household debt has hit a record 177 per cent of annual disposable income, The Australian Financial Review reports.

“House prices now equate to 4.3 times annual income and 28 times annual rent, both within a fraction of their historic highs,” Mr Davies said, according to the newspaper.

Mr Davies said he believed the Reserve Bank of was concerned about the strength of the the housing market, "where the evolution from recovery to boom has brought jawboning by the governor into play."

“We’re paying more attention to house prices and credit than the currency to see if the RBA changes its mind on macro-prudential tools [which limit lending growth] to gauge if housing strength could trigger a rate rise this year," he said according to the AFR.

Fitch Ratings affirmed Australia's triple-A sovereign debt rating, but warned surging house prices hold the potential to destabilise the country's banks.

With Treasurer Joe Hockey set to announce the government's first budget in mid-May, Fitch is anticipating substantial spending cuts to underpin a medium-term plan to reduce public debt.

The government "hasn't announced any concrete measures yet, but the budget is likely to include significant spending cuts," Fitch said in an internal report obtained by The Wall Street Journal.

The resource-rich economy is expected to continue growing at a pace below its long-term average of around 3 per cent in coming years, as the end of a decade-long mining investment boom acts as a headwind to activity.

"The end of the mining investment boom that supported growth over the past years has now set in and there are still substantial uncertainties surrounding the outlook," Fitch said.

The ratings agency also warned that if house prices in Australia continue to rise at their current pace, it could at "some stage impact gross domestic product growth and bank balance sheets."

Still, the country's banks are strong.

"The banking sector remains resilient. Major banks' capital holdings are currently rising and their profitability is expected to remain solid through 2014, providing a buffer to absorb a possible asset quality deterioration," the agency added.

Fitch's warning on housing comes as house price gains accelerate, fanned by record-low interest rates.

House prices jumped by a record 2.3 per cent in March from February, lifting home values in half of Australia's major cities to record levels. Home prices in Australia's capital cities have risen by nearly 11 per cent over the past year; in Sydney, the country's largest market, they are up nearly 16 per cent.

The Reserve Bank of Australia has indicated recently its growing concern about the pace of house-price increases.

RBA Governor Glenn Stevens told a Brisbane audience yesterday that even a modest overheating in housing markets can have long-term negative consequences for economic growth.

"Overdoing it on housing on the way up is usually followed by a fairly extended period of working off the problems," Mr. Stevens said.

Kieran Davies, chief economist at Barclays Australia, said the concern over house prices is justified as household debt in Australia has reached a record high.

"The RBA would be concerned by the exuberance in housing," Mr. Davies said.

Nursing home giant Japara Holdings will offer up to 225.2 million shares at $2 each, according to Bloomberg News, citing the company's prospectus. 

Japara, which has at least 35 Australian aged-care facilities, mostly in Victoria, had been expected by analysts to list at a  market capitalisation range of between $490m and $528m.

The fully underwritten deal was being led by investment bank Macquarie Group, with support from Morgans and CommSec.

It is understood that the banks had received funding commitments well in excess of the size of the offering, tipped to list this month.

Investors were attracted to Japara, backed by prominent real estate investor Julius Coleman, given it would become the country’s only listed aged-care provider, offering exposure to the ageing population.

Grocon's attempt to get into the US has fallen by the wayside after an agreement it had with a midtown Manhattan office building valued at $US775 million ($834m) fell apart, prompting the owner to pull the listing.

The unravelling of the deal comes shortly after executive chairman Daniel Grollo stepped back as chief executive of Grocon to further its push into global markets.

Last week the building’s owner, Shorenstein Properties, announced it had withdrawn the Park Avenue Tower from sale because Grocon was unable to close the deal before the exclusivity period concluded.

Grocon had already brokered a $US530m mortgage from Citibank for its planned purchase of the 35-storey building at 65 East 55th Street. According to local reports the deal fell apart after Grocon was unable to raise the additional $US200m capital required to close the deal.

A spokeswoman from Grocon declined to comment on the exact reason behind the deal falling apart. However, it is believed to have been instigated by tenants looking to renegotiate lease terms with the building’s owner ahead of a fresh sale campaign.

The building is 96.6 per cent occupied, with law firm Paul Hastings the anchor tenant in the building on a lease that expires in 2016.

“The asset presents a very attractive opportunity in our eyes,” the spokeswoman said.

“We will continue with that view, and should the asset come back to the market we will remain interested.”

She declined to comment on whether the company’s ability to obtain a joint investment partner for the building had affected the sale process.

Grocon had agreed to purchase 95 per cent of the 57,228sq m Park Avenue Tower in a deal that came to light last December. The remaining 5 per cent was to be owned by US real estate mogul George Klein, whose Park Tower Realty developed the property in 1986. Mr Klein is believed to have retained the stake for tax reasons.

The deal is outside of Grocon’s recently established joint investment venture with Swiss bank UBS which is part of Grocon’s aspirations to roll out a property funds management business. The joint venture is yet to purchase an asset.

The unwinding of Grocon’s midtown office deal comes as the company works to secure joint investment partners for the 2018 Commonwealth Games athletes village on the Gold Coast.

Australia and New Zealand Banking Group says banks may tighten lending standards if a lift in Sydney house prices spreads to other capital cities, Bloomberg reports.

According to the publication, ANZ chief executive officer for Australia Philip Chronican said banks need to be mindful of what will happen as very low interest rates rise.

"We've already put in a buffer over and above current interest rates to allow for the fact that the borrower might have to be repaying in a higher interest-rate environment. So one of the tools is to increase the buffer," Mr Chronican told Bloomberg.

When interest rates start rising, house prices will stabilise as affordability falls, he told the publication.

Ratings agency Moody's is continuing its review for a downgrade of Westfield Group's A2 issuer rating, saying a cut to A3 is likely if a planned merger goes ahead.

The agency placed the rating on review in December after Westfield announced plans to merge its Australian and New Zealand assets with those of Westfield Retail Trust.

The group would then have a weaker credit profile as a result of the lower asset quality and narrower asset base, Moody's senior analyst Maurice O'Connell said.

"The resulting asset base will be around half of the existing book value, and Westfield Group -- to be renamed Westfield Corporation under the proposed restructure -- will lose high quality Australian assets that have maintained an occupancy rate of 99 per cent over the past decade," Mr O'Connell said.

"Furthermore, the new Westfield Corporation has a significant pipeline of large development projects which has the potential to increase financial leverage."

The prospects of Australia’s initial public offering market are looking up following Japara Healthcare’s $450.4 million book build Friday that was two times oversubscribed, people involved in the IPO and those working in equity capital markets told Data Room.

Macquarie, sole underwriter of Japara, and other investment banks are now more confident about the IPO market in 2014 after the setback of Sterling Early Education and Mantra IPOs being pulled. The top underwriter of Australian IPOs in 2013, Macquarie has a pipeline of potential IPOs in the healthcare, online, technology and industrial sectors.

Some of Macquarie’s mandates may become M&A deals as private equity firms have hired Macquarie and others to explore so-called dual track sales of their portfolio companies: an IPO or a sale to another company.

After bullish predictions of a heady 2014 market for IPOs, volumes are less in the year to date than for the same period last year. Nine IPOs have been priced and two are trading so far in 2014, according to Bloomberg data. In the same period last year, 12 IPOs were priced and eight were trading.

Japara, a residential aged care company, is the biggest Australian IPO to date this year.

Its book build was bought forward 12 days after a group of mainly Australian-based fund managers pledged to cornerstone the deal ahead of a planned April 16 underwriting date.

Such demand led to the sale of 225.2 million Japara shares at $2 each, or 10.4 times 2015 forecast earnings before interest, tax, depreciation and amortisation, people involved in the IPO said.

Japara’s market value is estimated at $525m. The company is an amalgamation of two companies, a property and an operating company, which will be brought together by the IPO. Some investors will roll over their investment in one of the two companies into the new Japara and others will exit.

The company has 35 residential aged care facilities with 3,131 places and has ambitions to have as many as 5,000 places. Australia’s residential aged care sector has estimated revenues of $11.6 billion per annum. Residential aged care places are forecast to increase to 260,000 places in 2022 from about 186,000 places at present.

Japara is expected to begin trading on the ASX on April 17.

In other pending IPOs, 360 Capital Office Fund,  Acorn Capital Investment Fund, Genesis Energy and Beacon Lighting Group are also all slated to list in April, according to the ASX.

(Reporting by Brett.Cole@businessspectator.com.au)

(Editing by Miranda.Maxwell@businessspectator.com.au)

Back in the Olde Days, before the global financial crisis, when I was one of a handful raising the alarm, some of the most strident opposition to my opinion about what this might mean for housing in Australia came from Christopher Joye (who was then a Director at Rismark). We went head to head on many occasions, with me arguing that our prices were a debt-fuelled bubble, and Joye arguing that rising house prices simply reflected rising household incomes.

Fast forward to today, and though house prices have not done what I expected (see I will be wrong on house prices, November 12, 2013), one of the most prominent commentators asserting that there is a dangerous house price bubble in Australia is… Chris Joye (who is now a blogger for The Australian Financial Review. There are also many others who were once on the “no bubble” side of the argument who are now warning that there is one.

I’m delighted by this shift of course, but it does beg the question “what has changed -- the facts, or the commentators?” The answer, as in most things, is a bit of both -- but I think more the commentators than the facts.

Firstly, the issues that I highlighted as causes for alarm -- the level of household debt and the ratio of house prices to incomes -- are the same ones that Joye and others are now using to saying that we’re in a dangerous bubble. Secondly, the levels of those indicators are much the same as they were in 2010. So back in 2010 these indicators weren’t a problem, and now they are?

For example, in June 2010 Joye put out a press release that was quite blasé about a house price to income ratio of 4.7:

“Australia’s home price-to-income ratio has fallen slightly from the (upwardly revised) 4.7 times estimate as at December 2009, and is a little higher than the average ratio since December 2003 of 4.4 times… In contrast to claims that Australian home prices are seven to eight times incomes, Rismark’s analysis suggests that the true ratio across all regions and all dwelling types is nearly half this estimate. This in turn implies that Australian housing is not as expensive as is commonly suggested (Release: Australian home prices 4.6x disposable household incomes, June 4, 2010).”

So back then, a price to income ratio of 4.7 was not a problem. But last month, a lower ratio of 4.4 times was a problem, Joye argued:

“The $4 trillion Australian housing market is now overvalued by at least 10 per cent. Every day, valuations get more stretched. Indeed, Australia is just months away from having the most expensive residential property market in history… Taking the latest price data and assuming recent income growth rates, we get a price-income ratio of 4.4 times as at end March 2014. That is, 1.7 per cent off the peaks. Valuations are already 10 per cent above the average since 2000 and 20 per cent beyond than the benchmark since 1993 (Property prices headed for record high, March 28, 2014).”

Similarly on the level of mortgage debt, back in 2010, this wasn’t a problem:

“When we only analyse home owners with mortgage debt, the average value of that debt relative to the value of their homes is about 50 per cent. Australia’s largest lender, Commonwealth Bank, has actually disclosed that the average LVR across its mortgage book is much lower -- around 34 per cent if I recall correctly. Okay, so this tells us that the absolute debt levels are not particularly high… (Deconstructing Steve Keen, February 24, 2010).”

Last week, they were critically high, according to Joye:

“Australian household debt has hit a record 177 per cent of annual disposable income while housing valuations are "flashing red", according to Barclay's chief economist, Kieran Davies (Australia's house prices 'flashing red', debt to income ratio at record levels April 4, 2014).”

And yet household debt is only marginally different to its level in 2010: using the excellent new BIS data set, Australia’s household debt level is now 109.4 per cent of GDP, which is 1 per cent below its 2010 level (though it’s also been the highest of the lot since 2000, and the US and UK have seen substantial falls since 2010 while Australia has flatlined).

Figure 1: Household debt levels in the Anglo zone

So these facts haven’t changed -- but Joye’s interpretation of them has. And are there any other facts that have changed that might explain the change of heart?

I can think of one: the relationship between house prices and disposable incomes. Joye’s mantra all through our debates some years back was that changes in house prices merely reflected changes in disposable incomes:

In May 2010 he wrote: “What we said - We have been forecasting a cooling in capital growth rates back down to single digit levels since October last year. Australian disposable household incomes rose by 11.5 per cent in 2009 -- unsurprisingly, the cost of housing increased by almost exactly the same amount. In 2010, disposable household income growth will be less than 5 per cent. Over the long-run, residential property values track purchasing power quite closely…

“What happened – In 2010 house prices grew by 5 per cent , which was broadly in line with year-on-year disposable income growth (Benchmarking our historical house price forecasts, May 29, 2011).”           

This argument -- that house price changes merely reflect changes in disposable incomes -- hasn’t held up well. Using ABS house price data and the Reserve Bank data on disposable income (Sheet G12, column T, divided by population), in the period from 2008 till 2010 the correlation was plus 0.67, and this appeared to support Chris’s theory. But over the whole period from 2000 till today, the correlation is actually negative 0.12 (see figure 2).

And as Joye acknowledges in recent articles, house price growth is accelerating now as disposable income growth is falling:

“Australian dwelling prices have jumped more than 10 per cent over the year to March 2014. In Sydney and Melbourne, which make up 55 per cent of the metropolitan population, home values leapt by 15 per cent and 11 per cent, respectively. Yet disposable incomes per capita only rose by 1.7 per cent over 2013 (Property prices headed for record high, March 28, 2014).”

This is sending the house price change and disposable income change correlation deeply into the red: from 2011 till now it is minus 0.9. That is a drastic change of facts.

Figure 2: Negative correlation of change in disposable incomes & change in house prices

My alternative model was that house prices followed changes in mortgage debt -- and more precisely, that changes in house prices were driven by the acceleration of mortgage debt (this was a macroeconomic argument that I’ve since formalised -- see here). Though history hasn’t been kind to my expectations of house prices changes in Australia, it has been kind to my theory as to what drives them. The correlation between the acceleration of mortgage debt and change in house prices over 2000-2014 is 0.68 (see figure 3). And while disposable income growth is falling how, the acceleration of mortgage debt is increasing -- and the correlation from 2011 till now between mortgage acceleration and house price change is an even stronger 0.89.

Figure 3: Correlation of mortgage acceleration & change in house prices is 0.68

So perhaps Joye’s welcome change of tune is a reflection of Keynes’ classic statement that “when the facts change, I change my mind. What do you do, sir?” (Maybe we should have a beer over this, Chris.)

For my part, my change of expectations about house price rises -- which I now expect to see continue for some time, thanks to the combination of the speculative buying frenzy by “investors”, self-managed super fund levered purchases of property, and non-resident purchases -- reflects another of Keynes’s famous aphorisms, that “the market can remain irrational for much longer than you can remain solvent.”

But when mortgage debt growth turns south, my message is the same one Joye finished with recently: “buyer beware”.

Steve Keenis author of Debunking Economics and the blog Debtwatch, developer of the Minsky software program and chief economist for the Institute of Dynamic Economic Analysis.

The housing debate heated up this week with spirited discussion between Professor Steve Keen and Christopher Joye on both Business Spectator and The Australian Financial Review. Though some of the economic message may be lost among the personal politics, households and investors should heed their basic warning: house prices are increasingly overvalued and are at a genuine risk of falling sharply in the years ahead.

It is hard to ignore the rapid rise in house prices since the beginning of 2013. Sydney house prices, adjusted for inflation, have climbed by 16.5 per cent over the past fifteen months. Melbourne prices are up by almost 10 per cent over the same period.

What has been interesting about this boom is how localised it has been. Outside Sydney and Melbourne growth has mostly tracked incomes.

Speculative activity is the distinguishing factor between Sydney and Melbourne compared with the other capital cities. The strong growth in Sydney and Melbourne simply cannot be explained by fundamentals such as income growth or construction costs. The likes of Brisbane and Adelaide have experienced little growth in speculative activity and consequently observed little price growth.

There is a tendency in Australia to believe that house prices always rise. It is a product of rapid growth during the two decades up to the early 2000s when momentum in the housing market could rarely be quelled. The view has been pushed further by dodgy property spruikers, state and federal governments with vested interests and the media’s sometime unhealthy obsession with housing.

What is often not appreciated is how unique that period was. A number of factors conspired to create a perfect storm for house price growth: banking deregulation, demographics and the resource boom.

First, banking deregulation, low interest rates and low inflation created an environment where households could borrow more than ever before. Lending capacity rose sharply, credit growth with it and housing was the major beneficiary.

The two decades from the mid-1980s created what I like to refer to as a structural break. It was a one-off boost to house prices, which took around twenty years to flow through the market, and can never be replicated again. Housing debt will never again increase almost five-fold as a share of income; consequently neither can house prices sustainably rise as they did during the 1990s.

Second, favourable demographics – such as the rise of two-income families – were a boon for the housing sector. But with female labour market participation no longer rising and overall participation on a downward trajectory, our demographics have finally begun to work against the housing market. With the ‘baby boomer’ generation beginning to retire, demographics will begin to put downward pressure on house prices.

Third, the resource boom led to an unprecedented period of economic prosperity for Australia. Strong income growth and over twenty years of uninterrupted expansion created a perfect environment for housing speculation but also for legitimate price growth. With the terms-of-trade boom in the rear-view mirror, and demographics working against the economy, Australia can no longer assume that recessions are solely the problem of other lesser economies.

However, despite largely favourable conditions, house prices do fall and it happens more often than many think. Over the past decade Sydney has experienced three serious housing downturns; the other capital cities have had two downturns and a milder period of stability between 2004 and 2006.

The Sydney downturn in 2004 offers insight into today’s episode. Then, like now, there was a rapid rise in Sydney house prices that was primarily driven by speculation. When investor demand subsided, house prices declined to such an extent that it took a decade before Sydney prices returned to their previous peak.

The biggest threat to house prices right now isn’t the next interest rate rise, which remains some way off, but the likelihood that investor demand will soon become exhausted. Low interest rates cannot encourage investors to bring forward their investment decisions indefinitely, even if foreign buyers and self-managed super funds are boosting demand.

What will happen to prices when owner-occupiers and first home buyers are required to fill the void? History suggests that prices could decline sharply. I’d be very concerned if I was jumping into the market right now; there’s a good chance you’ve already missed the boat.

Despite what you might hear – particularly from property spruikers – house prices do fall. Three property downturns in a decade, combined with the recent boom in Sydney and Melbourne, suggest that the next one might be right around the corner.

However, investors and other buyers must also be aware of some of the long-term risks. For two decades the housing market benefited from a number of one-off factors – such as banking deregulation, favourable demographics and the mining boom – none of which can be replicated. Past performance is not an indicator of future performance and rarely can that be applied better than to Australian housing.

The demand for home loans was stronger than expected in February, but the proportion of loans to first home buyers is at the second-lowest level on record, according to the Australian Bureau of Statistics.

The data showed the number of home loans granted in February rose by 2.3 per cent to a seasonally adjusted 52,460.

Economists surveyed by Bloomberg expected the number of housing finance commitments to lift by 1.5 per cent in the month.

Total housing finance by value lifted by 2.9 per cent in February, seasonally adjusted, to $27.644 billion.

Loans to first home buyers, as a share of total of housing loans, fell to 12.5 per cent -- the second-lowest level since data commenced in 1991.

The average loan size fell by 2.3 per cent in February but is almost 6 per cent higher over the year.

The value of loans for investment housing rose by 4.4 per cent in February to $10.737bn, after falling by 3.3 per cent in January.

The value of loans for owner occupied housing lifted by 1.9 per cent to $16.907bn in February.

"There is further evidence self-managed superannuation funds are certainly gearing into property at the moment.

"It also tells us something about first home buyers, they're finding it difficult to get into the market.

"There's a lot of caution, households are saving a lot more and they are very reticent about taking out new loans."

Mr Peters said the housing sector looks like it will take over from mining investment as the main driver of growth for the Australian economy.

"The evidence is there that the housing market is picking up and we expect it to continue to do so," he said.

Treasurer Joe Hockey has rejected a foreign purchase of a house in Sydney in what some experts say could be a new direction in government policy.

The knockback comes as Prime Minister Tony Abbott leads a large delegation to North Asia to show Australia is "open for business" when it comes to investment and trade.

The purchase of the established four-bedroom house in Strathfield by Zhixiong Hua was rejected under the Foreign Acquisitions and Takeovers Act because it would have been "contrary to the national interest".

It is understood the purchase was screened by Treasury, under the foreign investment review process, and the buyer declined to provide further information when it was sought.

In 2012-13, a total of $51.9 billion of foreign investment in real estate was approved, including $5.42 billion in existing residential property.

But no proposal has been rejected in the national interest since 2011/12, according to the Foreign Investment Review Board's annual reports.

Parliamentary secretary to the treasurer Steven Ciobo would not comment on the specific case but said the rules applied equally to all potential investors and the government expected compliance.

"There is absolutely no change in policy," Mr Ciobo told AAP from Washington.

Foreign investors can purchase new but not second-hand property, unless other factors applied such as the property no longer had any economic life, he said.

Queensland University of Technology business expert Mark McGovern said the decision was an unusual one.

"It would be appropriate for the government to release information in order to inform the market more fully about whether it is a change of policy or this case is an exception," he told AAP.

Dr Alan Moran, from the Institute of Public Affairs, said he was unaware of any precedent for the decision.

"I've not seen any case of this," he said.

"We want to encourage immigration of entrepreneurial sorts of people, including from China, and this sends a bad message."

Real Estate Institute of NSW president Malcolm Gunning said foreign investment rules stated that foreign buyers could not purchase this class of property.

"If you are a foreign national and not resident, this is urban land not permitted for purchase," Mr Gunning said.

"We think this is exactly what should happen under the rules."

He said it appeared the buyer had been badly advised.

Mr Gunning said foreign buyers should be encouraged to purchase new properties, because this had a flow-on effect for jobs and investment, but existing older homes should be left to local buyers.

It appeared the Abbott government was "toughening up" in this policy area, he said.

"There's a little bit of political heat as far as this is concerned."

Mr Hockey last month referred the issue of foreign investment in residential real estate to parliament's economics committee.

Committee chairwoman Kelly O'Dwyer said at the time there have been concerns that foreign investment in Australian real estate is "causing a distortion in the market and making housing less accessible and affordable".

The four-bedroom house, on a 902 square metre block, is listed as having sold for $1.8 million on March 22.

Blackstone Group is nearing a deal to buy half of Mirvac’s Westpac Place in Sydney’s CBD, according to The Australian Financial Review.

The US-based private equity firm is believed to be in due diligence on the property, which is home to Westpac’s Sydney headquarters.

The 50 per cent stake was the subject of intense competition, with Blackstone topping other bidders through an offer of $440 million, the AFR said.

Westpac currently occupies the entire building, though there has been speculation it may downsize when its lease runs out in four years.

A lacklustre start to the year in the commercial property sector will be turned on its head over the next week as bids are due on over $1 billion worth of office towers, shopping and industrial facilities, according to The Australian Financial Review.

Among properties on the auction block are a $120 million industrial portfolio managed by Goodman Group and two Inghams properties worth a combined $600m, while bids have reportedly already rolled in for the famed Block Arcade in Melbourne and the New South Wales Police Headquarters in Parramatta.

“The slightly lower first quarter sales statistics belie the current level of activity in the industrial investment market,” CBRE Pacific head of industrial, Matt Haddon, told the AFR.

“Based on transactions currently in due diligence and current available stock, 2014 is expected to significantly outperform 2013 in volume terms.”